CONTENTS		COMPANY DIRECTORY
	Page	Directors
Company Directory	1	Domenic V Martino - (Chairman)
		John E T Towner
Chairman�s Report	2	Artur Birkner
		John P Castleman Jr
Review of Operations	3	Shane M Doherty

Directors� Report	6	Secretary
		Patrick Sam Yue
Auditor�s Report to the Members	12	Mark W Maine

Directors� Declaration	13	Principal Office
		RACA House
Profit and Loss Statements	14	89 Macquarie Street
		SYDNEY NSW 2000
Balance Sheet	15
		Registered Office
Statement of Cash Flows	16	C/- Deloitte Touche Tohmatsu
		Level 16, Central Park
Notes To And Forming Part Of	17	152 - 158 St Georges Terrace
Accounts		PERTH� WA� 6000

Tenements Summary	33	Solicitors
		Piper Alderman
Additional Information	34	Level 24
		1 O�Connell Street
		SYDNEY NSW� 2000

		Auditors
		Bird Cameron Partners
		Level 16
		55 Hunter Street
		SYDNEY NSW 2000

		Home Stock Exchange
		Australian Stock Exchange Limited
		2 The Esplanade
		PERTH� WA� 6000
		Code: SGC

		Share Registry
		National Registry Services Pty Limited
		Level 17, Central Park
		152 -158 St Georges Terrace
		PERTH� WA� 6000
		Telephone� (08) 9365 7010
		Facsimile�� (08) 9365 7011

CHAIRMAN�S REPORT

The Directors have pleasure in presenting the 1999 Annual Report for Sydney Gas Company (�SGC�).

The last year has seen the transformation of this company.� In this period the company has set out to establish itself as a leading Australian gas producer through development and production of Coal Bed Methane (�CBM�) in the Sydney Basin.

The company has initially focussed its efforts on production from PEL 2 through the 25 well pilot program that commenced at the �Johndilo Project�.

SGC set out on this project with a number of competitive advantages, namely:

proximity to gas markets and gas pipeline infrastructure;
leading US expertise and intellectual property in CBM extraction and production;
low cost operations.

Milestones the company has achieved since commencing this project include:

successful completion of the initial five wells in the Bulli Coal Seam;
laying and connection of gathering system for initial 5 wells;
continuation of program to drill a further 20 wells;
signing of a gas purchase agreement with AGL Wholesale Gas Limited for the sale of all of the company�s gas production from the 25 well Johndilo Coal Bed Methane Project at Camden for a period of ten years.

The contract with AGL is another important step in SGC�s five year plan to establish itself as the first local supplier of natural gas to the New South Wales market.� In fact, the signing of this contract with AGL is historic in that it represents the first sale to the NSW market of gas to be produced locally.� Current NSW gas supplies are sourced from the Cooper Basin in South Australia, more than 1500 kilometres from the NSW market.

The company is continuing discussions and negotiations with other prospective gas purchasers and project financiers and expects to make some important steps in this direction in the coming year.

The task immediately at hand for SGC is to complete the current 20 well program.� Once these wells are successfully completed, the company plans to drill up to 100 wells in the year 2000.� This will firmly put Sydney Gas Company on the path to becoming a leading Australian gas producer.

DOMENIC V MARTINO

Chairman

30 September 1999

�� REVIEW OF OPERATIONS

COAL BED METHANE PROJECT, SYDNEY BASIN, NEW SOUTH WALES

Petroleum Exploration Licence 2 (SGC interest :100%)

Petroleum Exploration Licence 4 (SGC interest : 60% earning 100%)

Petroleum Exploration Licence 267 (SGC interest : 82.5%)

The period from the successful completion of the company�s capital raising in July 1998 to the end of the calendar year was spent planning for the initial twenty-five well coal bed methane (�CBM�) pilot project to be implemented in PEL 2.� A considerable amount of geological evaluation work was done to come up with the specific area near the town of Camden, NSW where the project would be located.

At the same time, equipment specific to CBM drilling and production was bought, mobilised and shipped to Sydney from the United States.� Key personnel, with CBM production experience were hired.

Drilling activities began in February 1999 on the Johndilo farm, located just southwest of Camden.� By early May, five wells had been drilled, hydraulically fracced and completed.� Production testing started in July, as electricity was finally delivered to all wells.� One well, the Johndilo #1 has performed beyond expectations, in that it has flowed gas since completion, at rates of 300 - 400 gigajoules per day, with no pumping equipment needed.

The accomplishments achieved over the year have been significant.� The company has demonstrated that the Bulli coal seam can be successfully fracced.� Further, the company has proved that the Bulli coal has sufficient permeability to sustain commercial flow rates of gas.� And finally, the Johndilo #1 is the first well in NSW to deliver sustained, commercial, flow rates of gas.

Since the end of the financial year, there have been several developments of note.� Importantly, the company entered into a gas supply contract with AGL Wholesale Gas Limited.� Whereby AGL will buy all gas produced from the twenty-five wells to be drilled in the Johndilo Pilot Project.� The company will build a twenty-five kilometre pipeline to deliver the gas sold into the AGL Networks Moomba-Sydney pipeline, at a point near the town of Narellan, NSW.� Preliminary design and engineering work has already begun.

Operationally, drilling activities have resumed on the balance of the twenty-five wells to complete the pilot project.� It is anticipated that these wells will be completed in early 2000.

Production testing has continued on the Johndilo #2, #4, #9 and #10.� A considerable amount of cleanout work has been required to remove coal and coal fines that flow into the well bores of these wells.� The build up of coal fines in the well bore area blocks the flow of water and gas.� The cleanout procedures will be continued until the migration of coal fines is reduced to the point that the wells can be placed on production status for sustained periods.

REVIEW OF OPERATIONS (continued)

The plans for the financial year call for the completion of the Johndilo Pilot Project and the evaluation of the results being satisfactory, the drilling of approximately 100 additional wells through the end of 2000.� Simultaneously, the company, in planning for its capital needs, is considering a range of alternatives, which include additional equity capital, project financing, forward sales of gas or a combination of several such alternatives.

In summary, the company is encouraged with the progress of the Johndilo Pilot Project to date and is looking forward to a lot more progress in the coming year.

GAWLER (LAKE TORRENS) PROJECT, SOUTH AUSTRALIA

Exploration Licence 1956 (SGC interest:100% less 6% free carried)

The Gawler (Lake Torrens) Project is centred near Hawker, approximately 100km north-northwest of Port Augusta. The licence, granted in July 1994, is situated in a predominantly soil and alluvium covered area on the eastern side of the Gawler Craton.

In 1995� interpretation of the data captured following a high resolution airborne geological survey over the licence revealed numerous geophysical anomalies with many of the signatures characteristic of kimberlite intrusions. Among other features of interest, a central zone with a number of discrete magnetic targets at accessible depths have base and precious metal potential. A large sedimentary basin interpreted in the western part of the licence, has potential for Triassic coal and is comparable with other basins of this type in the region. Conceptually, the project area contains the pre-requisites for the formation of gold and base metal deposits, particularly copper-rich deposits.

Exploration of the tenement commenced in mid-1996 but was brought to a halt in early 1997 by the action of the Native Title Claimants. Negotiations are continuing with Native Title parties for access to the ground. The Directors believe that this project has the potential to warrant further exploration.

GIBB ROCK PROJECT, WESTERN AUSTRALIA

Exploration Licence 70/1792

Exploration Licence Application 77/795

(SGC interest :100%)

Exploration Licence 70/1792 (36 blocks) was granted on 19 January 1998. ELA 77/795 was recommended for approval under the expedited process but was objected to by a Native Title Claimant. Negotiations were successfully concluded and a Compensation Agreement was signed. However, the Company was unaware of an earlier Native Title Claim, as it was not notified by the Native Title Tribunal. The Company has been notified that the EL 70/1792 was approved. This project is scheduled for disposal.

�

REVIEW OF OPERATIONS (continued)

NEW ENGLAND SAPPHIRE PROJECT, NEW SOUTH WALES

EL 5056-5060, ML I439In (SGC interest: 60%)

EL 5223, 4942 (SGC interest: 100%)

The exploration and test mining on the sapphire projects were suspended in early April 1999. The returns of sapphires from the trial mining did not reflect the grades achieved during earlier exploration efforts. The New England Sapphire Joint Venture was dissolved in September 1999 and the remaining project is scheduled for disposal.

GEMVILLE OPAL PROSPECT, NEW SOUTH WALES

Mineral Claims (SGC interest:100%)

No field work was undertaken during the year. Four of the 13 mineral claims for opal exploration at Gemville have been relinquished as trial mining on these leases have produced negative results. The remaining claims are to be disposed of.

CAMPERDOWN NORTH PROJECT, WESTERN AUSTRALIA

Prospecting Licence Application 24/3645-3647 (SGC interest:90%)

No field work was undertaken by Britannia Gold NL, who are managers and operators of the Joint Venture. This project is scheduled for disposal.

DALGARANGA KEYGO JOINT VENTURE, WESTERN AUSTRALIA

Mining Licences 59/287-289, 59/265 (SGC interest:5%)

The SGC group holds a 5% free carried interest (to completion of mine feasibility) in the Dalgaranga Keygo Joint Venture, which is located some 80km northwest of Mount Magnet. Equigold NL was manager of the Joint Venture and also a 45.1% participant (with Western Reefs Limited 44.9%). Equigold NL has withdrawn from the Joint Venture on 59/287-289 and SGC relinquished its interests in this licence.

MT PHILLIP PROJECT, WESTERN AUSTRALIA

Mining Lease 09/28 (SGC interest :40%)

This project is scheduled for disposal.

�� DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999

The Directors present their report on the consolidated entity consisting of Sydney Gas Company N L and the entities it controlled at the end of, or during, the year ended 30 June 1999.

DIRECTORS

The names and details of the Directors in office at any time during the financial year and up to the date of this report are:

Domenic V Martino - Chairman

Mr Martino is a Chartered Accountant and a partner in the national chartered accounting firm Deloitte Touche Tohmatsu. He has extensive experience in taxation, corporate management and finance and is a director of a number of public companies.

John E T Towner - Executive Director

Mr Towner was appointed a director on 3 May 1999. He has over the last five years been involved in coal bed methane projects in Africa and Australia. He has over 30 years experience in drilling and completion of water bores in Australia and 25 years experience in manufacturing, designing and marketing pumping equipment and oil field down hold production equipment.

Artur Birkner - Non Executive Director

Mr Birkner holds an Industrial Chemist and Geology Diploma from Germany. He has over 30 years experience in mineral exploration throughout Australia. He has been involved in the development of several mineral deposits from the exploration stage to production. He has also developed the Biron hydrothermal emerald growth process and is a director of Biron Corporation Ltd.

John P Castleman Jr � Non Executive Director

Mr Castleman from Texas in the USA was appointed a director on 21 August 1998. He has over thirty years experience in the petroleum exploration and production industry in the USA. In recent years, he has been involved in the development of several coal bed methane projects in the USA. In addition, he has been a consultant to several international coal bed methane projects.

Shane M Doherty � Non Executive Director

Mr Doherty was appointed a director on 5 August 1998. He has extensive corporate experience obtained over the last twenty years in positions with various public and private companies.

Mr Gerald Johnson and Mr Stephen J Vining were directors from the beginning of the financial year until their resignation on 26 April 1999 and on 30 April 1999 respectively.

PRINCIPAL ACTIVITY

The principal activity of the Company was changed during the financial year with the start of coal bed methane exploration and development following the acquisition of Sydney Gas Operations Pty Ltd ( formerly CBM Australia Pty Ltd ). The Company continued the activity of mineral exploration during the year.

RESULTS

The net loss of the economic entity for the financial year after abnormal charges and income tax was $6,179,979 (1998 - $861,817). The results were affected by abnormal charges of $5,553,309 arising primarily from writing off deferred exploration expenditure.

DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999 (continued)

DIVIDENDS

No dividends have been paid or declared since the end of the previous financial year.

SHARE OPTIONS

The Company has the following options over unissued shares at the date of this report:-

Number	Exercise Price	Exercise on or before
Quoted
14,951,000	$0.20	30 June 2001
Unquoted
� 3,009,000	$1.00	30 September 2002
Unquoted Restricted
� 1,000,000	$0.30	31 December 1999
� 4,200,000	$0.20	21 August 2003
� 8,400,000	$0.25	21 August 2003
12,600,000	�$0.275	21 August 2003
16,800,000	�$0.305	21 August 2003

�During the year there were 1,400,000 fully paid ordinary shares issued by virtue of the exercise of options that were issued under the Company�s employee share option plan in the last financial year.

Options on issue do not provide any rights to the holder in respect of participation, by virtue of the options, in any share issue of any other body corporate.

INDEMNIFICATION OF OFFICERS AND AUDITORS

During the financial year the company paid a premium in respect of a contract insuring the directors of the company (as named above), the secretaries, and all executive officers of the company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Law. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred by such an officer or auditor.

STATE OF AFFAIRS

The state of affairs of the economic entity was not affected by any significant changes during the financial year other than that the Company issued 30 million fully paid shares and 15 million options over unissued shares raising $6 million to fund working capital and expenditure related to the coal bed methane project.

�

REVIEW OF OPERATIONS AND LIKELY DEVELOPMENTS

A review of the operations for the financial year, together with future prospects, are set out on pages 3 to 5.� During the year the economic entity started a coal bed methane pilot project in the Sydney Basin at Camden and continued exploring for minerals. During the subsequent financial year the likely developments of the economic entity involve primarily continuation of exploration and development of coal bed methane and

DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999 (continued)

reduced activity in mineral exploration. On 12 August 1999 the controlled entity, Sydney Gas Operations Pty Ltd, signed a gas supply agreement for its potential gas production from the initial 25 wells coal bed methane project in PEL2, Sydney Basin. The likely results of the exploration activities and development are unknown at the date of this report.

EVENTS SUBSEQUENT TO BALANCE DATE

On 12 August 1999 the controlled entity Sydney Gas Operations Pty Ltd signed a gas supply agreement with AGL Wholesale Gas Limited, an entity owned by the Australian Gas Light Company for the potential gas production from the initial 25 wells in the Johndilo coal bed methane pilot project.

During August and September 1999 the Company raised $3,009,000 by placement of 3,009,000 fully paid shares at an issue price of $1.00 each. Each share issued under the placement has an attaching option over one unissued share of the Company exercisable at $1.00 on or before 30 September 2002. The funds raised are to be applied to expenditure related to the coal bed methane project in PEL2.

In August 1999 the controlled entity Sydney Gas Operations Pty Ltd started the drilling of a set of 6 wells in the coal bed methane pilot project in PEL 2.�

On 27 August 1999 the controlled entity Sydney Gas Operations Pty Ltd entered into a Farmout Agreement under which Amadeus Petroleum N L is to drill a total of five wells in PEL2, PEL4 and PEL 267 including one at least in each PEL to earn 50 per cent of the crude oil rights only in a specific area surrounding each well. The economic entity shall retain all gas rights in the PELs.

In September 1999 the Company disposed of its interests in the New England Sapphire Joint Venture with the dissolution of the joint venture.

There has not arisen in the interval since 30 June 1999 and up to the date of this report, any other item, transaction or event of a material and unsual nature likely, in the opinion of the Directors, to affect substantially the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in future financial years.

MEETINGS OF DIRECTORS

The following table sets out the number of meetings held by the Directors of the Company during the year ended 30 June 1999 and the numbers of meetings attended by each Director:

		No of meetings attended	No of meetings held while in office
Domenic V Martino		8	8
John E T Towner	Appointed on 3 May 1999	1	1
Artur Birkner		7	8
John P Castleman Jr.	Appointed on 21 August 1998	6	6
Shane M Doherty	Appointed on 5 August 1998	6	6
Gerald Johnson	Resigned on 26 April 1999	6	7
Stephen J Vining	Resigned on 30 April 1999	6	7

DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999 (continued)

DIRECTORS' INTERESTS AND BENEFITS

At the date of this report the direct and indirect interests of the Directors in the securities of Sydney Gas Company N L were as follows:

	Ordinary Shares	Options
D V Martino	500,000	-
J E T Towner	�� -	11,970,000(1)
A Birkner	583,334	-
S M Doherty	499,500	12,198,750 (2)
J P Castleman	10,000	9,030,500(3)

1)Vendor Options granted to a company associated with Mr J E T Towner pursuant to the acquisition of CBM Australia Pty Ltd.

2)Includes 11,970,000 Vendor Options granted to a company associated with Mr S M Doherty pursuant to the acquisition of CBM Australia Pty Ltd and 228,750 Options exercisable at 20 cents on or before 30 June 2001.

3)Includes 9,030,500 Vendor Options granted to a company associated with Mr J P Castleman pursuant to the acquisition of CBM Australia Pty Ltd and 5,000 Options exercisable at 20 cents on or before 30 June 2001.

During or since the end of the year no Director of the Company has received or become entitled to receive a benefit other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in note 22 of the financial statements or the fixed salary of a full-time employee of the Company or of a related corporation by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with an entity in which he has a substantial financial interest, apart from:

a) During the year the Company used the services of Geological Consultants International Pty Ltd, Geological & Corporate Management Pty Ltd and Gerald Johnson & Co Pty Ltd for geological and consulting work. Mr G Johnson is a director of Geological Consultants International Pty Ltd, Geological & Corporate Management Pty Ltd and Gerald Johnson & Co Pty Ltd.

b) During and since the end of the year the Company used the services of chartered accounting firm Deloitte Touche Tohmatsu for accounting and financial advice services. Mr D V Martino is associated with the firm Deloitte Touche Tohmatsu.

c) During and since the end of the year Allregal Holdings Pty Ltd, a company of which Mr S M Doherty is a director, provided consultancy services to the Company.

d) During and since the end of the year CBM Management Pty Ltd, a corporation of which Mr J P Castleman and Mr J E T Towner are directors and in which they have substantial financial interests, provided consulting services to the Company in respect of the Coal Bed Methane Project.

Emoluments received or due and receivable by the Directors consisted of fees including superannuation as follows:-

�� $

A Birkner�� 31,670��

S J Vining�� 27,815

DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999 (continued)

Messrs D V Martino, J E T Towner, J P Castleman, S M Doherty and G Johnson received no emoluments during the year. No officers other than Directors received emoluments from the economic entity.

ENVIRONMENTAL REGULATIONS

The economic entity is subject to environmental regulation in respect to its exploration and mining activities in coal bed methane and minerals. The Company has engaged an independent consultant to regularly advise on and ensure compliance with environmental regulation in respect of its coal bed methane project. There have been no reports of breaches of environmental regulation in the financial year and at the date of this report

CORPORATE GOVERNANCE POLICY

The Board of Directors of Sydney Gas Company NL is responsible for the corporate governance of the economic entity. The Board monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable.

At the date of this report no separate committees of the Board of Directors exist. All matters to be dealt with by a committee are dealt with by the Board of Directors.

The following outlines the main corporate governance practices established to ensure the board is equipped to discharge its responsibilities.

Composition of the Board

The composition of the Board is determined in accordance with the following principles and guidelines:

� The Board shall comprise at least three Directors, increasing where additional expertise is considered desirable in certain areas.

� The Board shall comprise a majority of non-executive Directors.

� Directors may bring characteristics that allow a mix of qualifications, skills and experience.

The Board will review its composition on an annual basis to ensure that it has the appropriate mix of expertise and experience. Where a vacancy exists, for whatever reason, or where it is considered, that the Board would benefit from the services of a new Director with particular skills, the Board will select appropriate candidates with relevant qualifications, skills and experience.

The performance of all Directors will be reviewed by the Chairman each year. Directors whose performance is unsatisfactory will be asked to retire.

Independent Professional Advice

Each Director will have the right to seek independent professional advice at the Company�s expense. However, prior approval by the Chairman will be required, which will not be unreasonably withheld.

Remuneration

The Board will review the remuneration packages and policies applicable to executive Directors, senior executives and non-executive Directors on an annual basis. Remuneration levels will be competitively set to

DIRECTORS' REPORT

�� FOR THE YEAR ENDED 30 JUNE 1999 (continued)

attract qualified and experienced Directors and senior executives. Where necessary the Board will obtain independent advice on the appropriateness of remuneration packages.

Business Risk

The Board will monitor and receive advice on areas of operational and financial risk, and consider strategies for appropriate risk management arrangements.

Specific areas of risk that are identified will be regularly considered at Board meetings. Included in these areas are foreign currency and commodities price fluctuations, performance of activities, human resources, the environment and continuous disclosure obligations.

Millennium issue

Although the Company is not sufficient in size to justify an audit committee, the Board of Directors is taking a keen interest in ensuring that all issues are addressed. The executive Director is responsible for overseeing compliance. Services from outside consultants will be used as necessary.

Ethical Standards

The Board�s policy for the Directors and management is to conduct themselves with the highest ethical standards. All Directors and employees will be expected to act with integrity and objectivity, striving at all times to enhance the reputation and performance of the economic entity.

In accordance with Section 309A of the Corporations Law the directors advise that this report has been made in accordance with a resolution of Directors.

Dated this 30^th day of September 1999

J P Castleman��

Director��

�� INDEPENDENT AUDIT REPORT TO THE MEMBERS OF

SYDNEY GAS COMPANY N L

Scope

We have audited the financial report of Sydney Gas Company N.L. and controlled entities comprising the Directors� Declaration, Profit and Loss Statement, Balance Sheet, Statement of Cash Flows and notes to and forming part of the financial statements for the year ended 30 June 1999. The financial report includes the consolidated financial report of the consolidated entity comprising the company and the entities it controlled at the year�s end or from time to time during the financial year.� The company�s directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement.� Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates.� These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements and statutory requirements so as to present a view which is consistent with our understanding of the company�s and the consolidated entity�s financial position, and performance as represented by the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial report of Sydney Gas Company N L and controlled entities is in accordance with:

(a)�� the Corporations Law, including:

i)�� giving a true and fair view of the company�s and consolidated entity�s financial position as at�� 30 June 1999 and of their performance for the year ended on that date; and

�� ii)�� complying with Accounting Standards and the Corporations Regulations; and

(b)�� other mandatory professional reporting requirements.

Dated in Sydney this 30^th day of September, 1999.

��

�� BIRD CAMERON PARTNERS�� H R MOLL

�� Chartered Accountants�� Partner

�� DIRECTORS� DECLARATION

FOR THE FINANCIAL YEAR ENDED 30 JUNE 1999

The Directors declare that the financial statements and notes set out on pages 14 to 32:

(a) comply with Accounting Standards, the Corporations Regulations and other mandatory professional reporting requirements; and

(b) give a true and fair view of the Company�s and economic entity�s financial position as at 30 June 1999 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date.

In the opinion of the Directors:-

(a)�� the financial statements and notes are in accordance with the Corporations Law; and

(b)�� there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due and payable.

This declaration is made in accordance with a resolution of Directors.

Dated this 30^th day of September 1999.

J P Castleman��

Director��

�� PROFIT AND LOSS STATEMENTS

�� for the year ended 30 June 1999

Consolidated

Company

Note

1999

1998

1999

1998

Operating loss before abnormal items and income tax

2,3

626,670

383,698

590,943

383,698

Abnormal items before income tax

5,553,309

478,119

3,467,984

478,119

Operating loss before income tax

6,179,979

861,817

4,058,927

861,817

Income tax attributable

to operating loss

Operating loss after income tax

6,179,979

861,817

4,058,927

861,817

Accumulated losses at the

beginning of the financial year

1,887,684

1,025,867

1,887,669

1,025,852

Accumulated losses at the

end of the financial year

8,067,663

1,887,684

5,946,596

1,887,669

�� BALANCE SHEETS

�� as at 30 June 1999

Consolidated

Company

Note

1999

1998

1999

1998

Current Assets

Cash

Receivables

Investments

Other

1,034,570

24,856

130,648

251,940

303,560

1,855

53,147

10,086

1,084,600

5,064,187

130,648

166,765

303,560

1,870

53,147

10,086

Total Current Assets

1,442,014

368,648

6,446,200

368,663

Non Current Assets

Plant and equipment

Wells and well equipment

Investment

Exploration expenditure

Other

854,748

1,187,687

1,661,464

30,745

3,308,611

6,593

79,238

30,745

50,000

3,258,611

6,593

Total Non Current Assets

3,703,899

3,345,949

79,242

3,345,949

Total Assets

5,145,913

3,714,597

6,525,442

3,714,612

Current Liabilities

Accounts payable

Borrowings

801,887

26,374

726,822

156,829

726,822

Total Current Liabilities

828,261

726,822

156,829

726,822

Non Current Liabilities

Borrowings

70,106

Total Non Current Liabilities

70,106

Total Liabilities

898,367

156,829

Net Assets

4,247,546

2,987,775

6,368,613

2,987,790

Equity

Issued capital

Accumulated losses

12,315,209 (8,067,663)

4,875,459

(1,887,684)

12,315,209

(5,946,596)

4,875,459

(1,887,669)

Total Equity

4,247,546

2,987,775

6,368,613

2,987,790

�� STATEMENTS OF CASH FLOWS

�� for the year ended 30 June 1999

Consolidated

Company

Note

1999

1998

1999

1998

Cash flows from Operating

Activities

Receipts from customers

Payments to suppliers and employees

Interest received

Interest paid

121,199

(1,155,285)

135,561

(4,679)

(193,369)

43,717

121,199

(1,155,285)

135,079

(395)

(193,369)

43,717

Net Cash Used in

Operating Activities

25(b)

(903,204)

(149,652)

(899,402)

(149,652)

Cash Flows from Investing

Activities

Payments for plant and equipment

Payments for research & development

Payments for exploration

Payments for wells and well equipment

Payments to controlled entity

Payments for purchase of investments

Receipts on sale of investments

Payments for security deposits

(798,652)

(10,622)

(2,897,708)

(1,187,687)

(350,000)

(250,953)

(29,773)

(6,593)

(855,259)

(143,092)

102,902

(87,278)

(10,622)

(468,167)

(4,367,374)

(350,000)

(165,953)

(29,773)

(6,593)

(855,259)

(143,092)

102,902

Net Cash Used in

Investing Activities

(5,495,622)

(931,815)

(5,449,394)

(931,815)

Cash Flows from Financing

Activities

Proceeds from issue of shares

Repayment of borrowings

Capital raising costs

7,463,750

(333,914)

133,776

(7,419)

7,463,750

(333,914)

133,776

(7,419)

Net Cash Provided by

Financing Activities

7,129,836

126,357

7,129,836

126,357

Net Increase/(Decrease) in Cash Held

Cash at the Beginning of

Financial Year

731,010

303,560

(955,110)

1,258,670

781,040

303,560

(955,110)

1,258,670

Cash at the End of the

Financial Year

25 (a)

1,034,570

303,560

1,084,600

303,560

1.�� SUMMARY OF ACCOUNTING POLICIES

�� The financial report is a general purpose financial report which has been prepared in accordance with applicable Australian Accounting Standards, other mandatory professional reporting requirements and the requirements of the Corporations Law.

�� The financial statements have also been prepared on the basis of historical costs and do not take into account changing money values or, except where stated, current valuations of non-current assets.� Cost is based on the fair values of the consideration given in exchange for assets.� The accounting policies have been consistently applied, unless otherwise stated.

�� Significant Accounting Policies

Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby, ensuring that the substance of the underlying transactions and other events are reported.

In addition to the accounting policies prescribed by applicable Accounting Standards and Urgent Issues Group Consensus Views, the following significant accounting policies have been adopted in the preparation and presentation of the financial report:

�� 1.1�� Principles of Consolidation

�� The consolidated accounts have been prepared by combining the financial statements of all the entities that comprise the economic entity, being the company (the chief entity) and its controlled entities as defined in accounting standard AASB1024 �Consolidated Accounts�. A list of controlled entities appears in Note 17. Consistent accounting policies have been employed in the preparation and presentation of the consolidated accounts.

The consolidated accounts include the information and results of each controlled entity from the date on which the company obtains control and until such time as the company ceases to control such entity.

In preparing the consolidated accounts, all intercompany balances and transactions, and unrealised profits arising within the economic entity are eliminated in full.

�� 1.2�� Income Tax

�� Tax effect accounting procedures are followed whereby the income tax expense in the profit and loss account is matched with the accounting profit (after allowing for permanent differences). The future tax benefit relating to tax losses is not carried forward as an asset unless the benefit can be regarded as being virtually certain of realisation. Income tax on net cumulative timing differences is set aside to the deferred income tax and future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse. The current tax rates have been used for this purpose.

�� 1.3�� Exploration Expenditure

�� Exploration, evaluation and development expenditure are accumulated in respect of each identifiable area of interest, and carried forward in the balance sheet where:

1.�� SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

�� 1.3�� Exploration Expenditure (Continued)

�� (a)�� rights to tenure of the area of interest are current; and

�� (b)�� one of the following conditions is met:

�� (i)�� such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; or

�� (ii)�� exploration and/or evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the areas are continuing.

�� Accumulated expenditure on areas which have been abandoned, or are considered to be of no value, are written off in the year in which such a decision is made.

�� 1.4�� Plant & Equipment

�� Plant and equipment are brought to account at cost or directors� valuation, less, where applicable, any accumulated depreciation or amortisation. The carrying amount of plant and equipment is reviewed by directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows, which will be received from the asset�s employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts.

Plant and equipment are stated at cost less depreciation and are depreciated at rates based upon their expected useful life using the straight line method of depreciation.

The gain or loss on disposal of fixed assets, including revalued assets, is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, and is included in operating profit or loss before income tax of the economic entity in the year of disposal.

�� 1.5�� Recoverable Amount of Non Current Assets

Non current assets are written down to recoverable amount where the carrying value of any non current asset exceeds recoverable amount.� In determining the recoverable amount of non current assets, the expected net cash flows have not been discounted to their present value.

1.�� SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

�� 1.6�� Controlled Entities

�� Investment in the controlled entities is valued in the Company's accounts at cost.

�� The carrying amount of investments is reviewed annually by directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the shares current market value or the underlying net assets in the particular companies. The expected net cash flows from investments have not been discounted to their present value in determining the recoverable amounts, except where stated.

�� Dividends are brought to account in the profit and loss account when received except for dividends from controlled entities which are brought to account when they are proposed by the controlled entity.

�� 1.7�� Cash

�� For the purpose of the statement of cash flows cash includes cash on hand and in bank and money market investments readily convertible to cash within two working days, net of outstanding bank overdraft.

�� 1.8�� Earnings per Share

�� Basic Earnings per Share

�� Basic earnings per share is determined by dividing the operating profit after income tax and preference share dividends attributable to members by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

�� Diluted Earnings per Share

�� Diluted earnings per share adjust the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of options outstanding during the financial year.

�� 1.9�� Joint Ventures

�� Interests in joint ventures have been reported in the accounts by including the economic entity�s share of assets employed in the joint ventures the share of liabilities incurred in relation to joint ventures and the share of expenses incurred in relation to joint ventures in their respective classification categories.

Consolidated

Company

1999

1998

1999

1998

2.�� OPERATING REVENUE

Sales

Disposal of assets

Interest revenue from other persons

Other

121,199

5,000

137,409

243

30,648

121,199

5,000

136,752

30,648

TOTAL OPERATING REVENUES

263,851

30,648

262,951

30,648

3.�� OPERATING LOSS

The operating loss has been determined after:

Charging as expenses:

Depreciation of plant and equipment

Amortisation of research and development

Amortisation of finance leases

Auditors� remuneration for

�� auditing and reviewing the accounts

Loss on disposal of assets

Interest and finance charges

Exchange gain

50,458

3,714

8,005

14,563

1,418

4,679

(242)

8,253

9,248

26,120

3,714

14,563

1,418

395

8,253

9,248

Abnormal items:

(no income tax applicable unless otherwise stated)

Profit on sale of investments (tax effect 1998 : $23,908)

Exploration expenditure written off

Write down investment in controlled entity

Capital raising expenses

Provision for diminution in value of investment

4,946,896

333,914

272,499

(66,411)

344,716

199,814

2,811,571

50,000

333,914

272,499

(66,411)

144,716

200,000

199,814

Net abnormal losses

5,553,309

478,119

3,467,984

478,119

	Consolidated		Company
	1999 $	1998 $	1999 $	1998 $
4.�� INCOME TAX No income tax is payable by the company or economic entity as they incurred losses for income purposes. The prima facie income tax expense on pre-tax accounting loss reconciles to the income tax expense in the accounts as follows:
Operating loss	6,179,979	861,817	4,058,927	861,817

Income tax benefit calculated at 36% of loss Tax effect of permanent differences: Non-deductible expenditure Timing differences and tax losses not brought to account as future income tax benefits	(2,224,792) 174,835 2,049,957	(310,254) 76,712 233,542	(1,461,214) 136,060 1,325,154	(310,254) 148,912 161,342
Income tax expense attributable to the operating loss	-	-	-	-
Future income tax benefits Attributable to tax losses and undeducted exploration expenditure, the benefits of which are not virtually certain of realisation at 36%: Tax losses Undeducted exploration expenditure	393,619 2,964,281	155,465 1,134,938	358,126 1,227,328	155,465 1,134,938
The taxation benefits will only be obtained if: (i)�� The economic entity derives assessable income of a nature and of amount sufficient to enable the benefit from the deductions to be realised; (ii)�� The economic entity continues to comply with the conditions for deductibility imposed by the law; and (iii)�� There are no changes in tax legislation adversely affecting the economic entity in realising the benefit from the deductions.

Consolidated

Company

1999

1998

1999

1998

5.�� CASH

Cash at bank

Cash in hand

1,034,570

303,520

1,084,600

303,520

1,034,570

303,560

1,084,600

303,560

6.�� CURRENT RECEIVABLES

Debtors

Amount receivable from controlled

Entities

24,856

1,855

1,319

5,062,868

1,870

24,856

1,855

5,064,187

1,870

7.�� CURRENT INVESTMENTS

Shares in listed entities

448,825

98,825

448,825

98,825

Less: Provision for diminution in value�� of investment

318,177

45,678

318,177

45,678

�� Market value

130,648

53,147

130,648

53,147

8.�� OTHER CURRENT ASSETS

Interest Receivable

Prepayments

Security deposits

987

250,953

458

9,628

812

165,953

458

9,628

251,940

10,086

166,765

10,086

9.�� PLANT AND EQUIPMENT

At cost net of amounts written off

Less: accumulated depreciation

810,943

(55,383)

46,963

(16,218)

110,284

(31,046)

46,963

(16,218)

755,560

30,745

79,238

30,745

Plant and motor vehicles under lease: At capitalised cost

Less: amortisation

107,193

(8,005)

99,188

854,748

30,745

79,238

30,745

Consolidated

Company

1999

1998

1999

1998

10.�� NON CURRENT INVESTMENTS

Shares in controlled entities

At cost

Less: provision for diminution in value

250,004

(250,000)

250,000

(200,000)

50,000

11.�� EXPLORATION AND

EVALUATION EXPENDITURE

Balance at beginning of year

Add: Expenditure during the year

3,308,611

3,299,749

2,602,752

1,050,575

3,258,611

248,454

2,352,752

1,050,575

Total exploration expenditure

Less:Transfer to controlled entity

Less: Amount written off during year

6,608,360

(4,946,896)

3,653,327

(344,716)

3,507,065

(695,494)

(2,811,571)

3,403,327

(144,716)

1,661,464

3,308,611

3,258,611

The value of the mineral and gas exploration and evaluation expenditure is dependent upon the successful exploitation and/or sale of interests in mineral or gas exploration tenements.

12.� �� OTHER NON-CURRENT ASSETS

Research and development expenditure at cost

6,593

13.�� CURRENT ACCOUNTS PAYABLE

Creditors and accruals

Amount owing to joint venture party

751,887

50,000

676,822

50,000

106,829

50,000

676,822

50,000

801,887

726,822

156,829

726,822

14.�� CURRENT BORROWINGS

Secured finance leases

26,374

Consolidated

Company

1999

1998

1999

1998

15.�� NON-CURRENT BORROWINGS

Secured finance leases

70,106

16.�� ISSUED CAPITAL

(a)�� Issued capital

Balance at beginning of year:

38,871,548 fully paid shares

(1998 � 38,202,666)

Less: Discount on shares issued

Shares issued during year:

30,000,000 shares at 20 cents each on a rights issue � July 1998

1,000,000 shares at 30 cents each on exercise of options �April 1999

400,000 shares at 35 cents each on exercise of options �April 1999

2,275,000 shares at 45 cents each by placement � April 1999

668,882 shares at 20 cents each�� in 1998

Less : Transaction costs arising

�� on shares issues

4,875,459

6,000,000

300,000

140,000

1,023,750

(24,000)

7,630,034

(2,888,351)

133,776

4,875,459

6,000,000

300,000

140,000

1,023,750

(24,000)

7,630,034

(2,888,351)

133,776

Balance at end of year:

72,546,548 fully paid shares

(1998 � 38,871,548)

12,315,209

4,875,459

12,315,209

4,875,459

(b) The Company had the following options over unissued shares at the end of the financial year:-

Number	Exercise Price	Exercise on or before
Quoted
15,000,000	$0.20	30 June 2001
Unquoted Restricted
1,000,000	$0.30	31 December 1999
4,200,000	$0.20	21 August 2003
8,400,000	$0.25	21 August 2003
12,600,000	�$0.275	21 August 2003
16,800,000	�$0.305	21 August 2003

17.� CONTROLLED ENTITIES

Percentage

owned

Book Value

Contribution to Consolidated Loss

1999

1998

1999

1998

1999

1998

Parent Entity:

Sydney Gas Company NL

4,058,927

861,817

Controlled entities :

Desertstone NL (formerly Candiru NL)

Sydney Gas Operations Pty Ltd

(formerly CBM Australia Pty Ltd)

100

50,000

2,121,052

50,000

6,179,979

861,817

The parent and controlled entities are incorporated in Australia.The shares held in the controlled entities are ordinary shares.

CBM Australia Pty Ltd was acquired on 21 August 1998 and its name was changed to Sydney Gas Operations Pty Ltd in May 1999.

18.�� EXPENDITURE COMMITMENTS

	Consolidated			Company
	1999 $		1998 $		1999 $	1998 $
Finance leases
Commitments in relation to finance leases are payable as follows:-
- not later than 1 year	33,928	-		-			-
- later than1 year but before 2 years	33,928	-		-			-
- later than 2 years but before 5 years	42,822	-		-			-
Minimum lease payments	110,678	-		-			-
Less: Future finance charges	14,198
Recognised as a liability	96,480	-		-			-
Representing lease liabilities Current ( note 14)	26,374	-		-			-
Non-current (note 15)	70,106	-		-			-
	96,480	-		-			-
The weighted average interest rate implicit in the leases is 8.85%

	Consolidated				Company
		1999 $	1998 $	1999 $		1998 $
18.�� EXPENDITURE COMMITMENTS (continued) �� Exploration expenditure
The Company and economic entity are required to outlay lease rentals and to meet minimum expenditure requirements to maintain current rights of tenure to exploration and mining tenements and of joint ventures. These obligations may be subject to renegotiation, may be farmed out or may be relinquished and have not been provided for in the financial statements and are due:
Not later than one year		870,000	11,833	370,000		11,833
Later than 1 year but before 2 years		-	597,700	-		597,700
Later than 2 years but before 5 years		-	-	-		-
		870,000	609,533	370,000		609,533

The work commitment of drilling one well estimated at $500,000 was farmed out in August 1999 (note 28(b))

19.�� CONTINGENT LIABILITY

The Company�s bankers have given guarantees to the New South Wales Minister for Mines for restoration work and performance guarantees totalling $250,000 (1998 - $81,000). These guarantees are secured by a charge over term deposits lodged with the bankers.

20.�� SEGMENT INFORMATION

The economic entity operates predominantly in Australia and in the mining industry.

21. �� INTERESTS IN JOINT VENTURES

The economic entity has interest in unincorporated joint ventures as follows. All joint ventures have principal activities of mineral exploration:

�� Percentage Interest

1999�� 1998

Sapphire Mines NL Joint Venture�� 60%�� 60%

Mt Phillip Joint Venture�� 40%�� 40%

Keygo Bore Joint Venture�� 5%�� 5%

The economic entity�s share of assets employed in joint ventures is exploration expenditure of $Nil (1998 - $1,317,591 ) and cash of $115,698 (1998 � $128,947 ).

	Consolidated			Company
	1999 $	1998 $	1999 $		1998 $
22.�� REMUNERATION OF DIRECTORS (a)�� The aggregate of income paid or payable or otherwise made available, in respect of the financial year, to all directors of the Company by the Company or by any related party	59,485	19,168	59,485		19,168

(b)�� Number of directors (including executive directors) of the company whose income from the Company or any related party falls within the following bands: $ 0 - $�� 9,999 $10,000 - $ 19,999 $20,000 - $ 29,999 $30,000 - $ 39,999	Number 5 - 1 1	Number 1 3 - -	Number 5 - 1 1		Number 1 3 - -
23.� RELATED PARTY DISCLOSURES Controlled Entities Information relating to controlled entities is set out in Note 17. Directors The names of each person holding the position of Director of the Company during the financial year are Messrs D V Martino, J E T Towner (appointed on 3 May 1999), A Birkner, J P Castleman (appointed on 21 August 1998), S M Doherty (appointed on 5 August 1998), G Johnson (resigned on 26 April 1999) and S J Vining (resigned on 30 April 1999). �� Interests in the securities of the Company held directly and indirectly by the Directors at balance�� date are as follows:
Name of Director�� Ordinary�� Options Expiring�� Options Expiring 21 August 2003�� �� Shares�� 30 June 2001�� A Class�� B Class�� C Class�� D Class�� Exercisable at �� 20 cents per share�� D V Martino�� 500,000�� -�� -�� -�� -�� - J E T Towner�� -�� -�� 1,197,000� 2,394,000�� 3,591,000� 4,788,000 A Birkner�� 583,334�� -�� -�� -�� -�� - S M Doherty�� 499,500�� 228,750�� 1,197,000� 2,394,000� 3,591,000 4,788,000�� J P Castleman�� 10,000�� 5,000�� 903,000� 1,806,000� 2,709,000 3,612,000��
23.�� RELATED PARTY DISCLOSURES (continued) Directors and their related entities acquired 10,000 (1998 �105,683) ordinary shares with attaching 5,000 options exercisable at 20 cents on or before 30 June 2001 and disposed of nil (1998 � 83,333) ordinary shares in the Company on the same terms and conditions available to other shareholders.
�� Related Party Transactions a) During the financial year $231,347 (1998 - $105,350) was paid to Geological Consultants International Pty Ltd, Geological & Corporate Management Pty Ltd and Gerald Johnson & Co Pty Ltd, companies associated with Mr G Johnson for the provision of geological and consulting services in the normal course of business. b) During the previous financial year Mr G Johnson was granted 1,000,000 options over unissued shares each exercisable at 30 cents on or before 31 December 1999, pursuant to the employee share option scheme, in consideration for services to the Company. The options were exercised in April 1999. c) Mr D V Martino is a partner in the firm of Chartered Accountants, Deloitte Touche Tohmatsu, from which the economic entity has obtained financial, taxation and corporate services in the normal course of business.� Mr Martino does not exert significant influence over Deloitte Touche Tohmatsu. d) During the financial year $540,625 was paid to CBM Management Pty Ltd, a company associated with Mr J P Castleman and Mr J E T Towner, for the provision of project management services under a contract approved by shareholders at the general meeting held on 9 June 1998. e) In August 1998 the Company acquired CBM Australia Pty Ltd following approval by shareholders at an extraordinary general meeting of members held on 9 June 1998. Mr J P Castleman, Mr J E T Towner and Mr S J Doherty held interests in CBM Australia Pty Ltd prior to its sale to the Company. Restricted options expiring on 21 August 2003 were issued in accordance with the purchase agreement as follows:- �� A Class�� B Class�� C Class�� D Class �� J E T Towner�� 1,197,000�� 2,394,000�� 3,591,000�� 4,788,000 S M Doherty�� 1,197,000�� 2,394,000�� 3,591,000�� 4,788,000 J P Castleman�� 903,000�� 1,806,000�� 2,709,000�� 3,612,000 The A class options are exercisable at 20 cents per share on or before the expiry date. The B class options are exercisable at 25 cents on or before the expiry date at any time after the first coal bed methane well is established provided that total methane production averages 200 gigajoules per day per well. The C class options are exercisable at 27.5 cents on or before the expiry date at any time after the completion of not less than 20 coal bed methane wells provided that total methane production averages 200 gigajoules per day per well. The D class options are exercisable at 30.5 cents on or before the expiry date at any time after the completion of not less than 50 coal bed methane wells provided that it is demonstrated that total methane production will average 200 gigajoules per day per well.

24.�� EARNINGS PER SHARE

1999

cents

1998

cents

Basic earnings (loss) per share

(9.2)

(2.27)

Diluted earnings (loss) per share

(7.4)

Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share

67,158,466

38,205,906

Consolidated

Company

1999

1998

1999

1998

25.� NOTES TO THE STATEMENTS OF �� CASH FLOWS

(a)�� Reconciliation of cash

Cash at bank

Cash in hand

1,034,570

303,520

1,084,600

303,520

1,034,570

303,560

1,084,600

303,560

(b)�� Reconciliation of operating loss after income tax to net cash used in operating activities

Operating loss after income tax

Add items classified as financing or investing activities:

Capital raising costs

Profit on sale of investment

Profit from Joint Venture

Exchange gain

Add/(less) non cash items in operating costs:

Depreciation and amortisation

Exploration expenditure

written off

Provision for diminution in value of investment in controlled entity

(6,179,979)

333,914

(242)

62,177

4,946,895

(861,817)

199,814

(66,411)

(2,252)

8,253

344,716

(4,058,927)

333,914

29,834

2,811,571

50,000

(861,817)

199,814

(66,411)

(2,252)

8,253

144,716

200,000

Consolidated

Company

1999

1998

1999

1998

25.� NOTES TO THE STATEMENTS OF �� CASH FLOWS (continued)

Write down of carrying value of investment

Loss on sale of fixed assets

Change in assets and liabilities:

Increase/(decrease) in

creditors and accruals

Decrease in prepayments

Increase in receivables

(Increase)/Decrease in interest receivable

272,499

1,418

(347,666)

9,628

(1,319)

(529)

53,456

156,419

5,101

13,069

272,499

1,418

(347,666)

9,628

(1,319)

(354)

53,456

156,419

5,101

13,069

Net Cash used in Operating

Activities

(903,204)

(149,652)

(899,402)

(149,652)

�� Non Cash Financing and Investing Activities

�� During the year the economic entity acquired plant and motor vehicles to the amount of $107,193�� using finance leases.

26.�� FINANCIAL INSTRUMENTS

(a)�� Interest Rate Risk

The economic entity�s exposure to interest rate risk, which is the risk that a financial instrument�s value will fluctuate as a result of changes in market, interest rates and the effective weighted average interest rates on those financial assets, is set out below:

			Fixed Interest Rate Maturity
	Average Interest Rate	Variable Interest Rate	Less than 1 Year	1 to 5 Years	More Than 5 Years	Non-Interest Bearing	Total
1999
	%	$�000	$�000	$�000	$�000	$�000	$�000
Financial Assets
Cash	4.5	24	945	-	-	66	1,035
Trade receivables	-	-	-	-	-	25	25
Shares	-	-	-	-	-	131	131
Security deposits	3.9	-	251	-	-	-	251
		24	1,196	-	-	222	1,442
Financial Liabilities
Creditors		-	-		-	802	802
Secured leases	8.9	-	26	70	-	-	96
		-	26	70	-	802	898

26.�� FINANCIAL INSTRUMENTS (continued)��

			Fixed Interest Rate Maturity
	Average Interest Rate	Variable Interest Rate	Less than 1 Year	1 to 5 Years	More Than 5 Years	Non-Interest Bearing	Total
1998
	%	$�000	$�000	$�000	$�000	$�000	$�000
Financial Assets
Cash	4.0	154	149	-	-	-	303
Trade receivables	-	-	-	-	-	2	2
Shares	-	-	-	-	-	53	53

		154	149	-	-	55	358
Financial Liabilities
Creditors	-	-	-	-	-	727	727

	-	-	-	-	-	727	727

(b)�� Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date, to recognised financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the balance sheet and notes to the financial statements.

The economic entity does not have any material credit risk exposure to any single debtor or group debtors, under financial instruments entered into by it.

(c)�� Net fair Values

Methods and assumptions used in determining net fair value.

For assets and other liabilities, the net fair value approximates their carrying values.� No financial assets and financial liabilities are readily traded on organised markets in standardised form, other than listed investments.� The economic entity has no financial assets where the carrying amount exceeds net fair values at balance date.

The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the balance sheet and in the notes to and forming part of the financial statements.

27.� SUPERANNUATION

The economic entity makes contributions, based on each employee�s salary, to a superannuation plan that provides employees with benefits on retirement in accordance the superannuation guarantee legislation.

28.� �� SUBSEQUENT EVENTS

Following the end of the financial year the following events occurred which have not been brought to account.

(a) On 12 August 1999 the controlled entity Sydney Gas Operations Pty Ltd signed a gas supply agreement with AGL Wholesale Gas Limited, an entity owned by The Australian Gas Light Company for the potential gas production from the initial 25 wells in the Johndilo coal bed methane pilot project.

(b) On 27 August 1999 the controlled entity Sydney Gas Operations Pty Ltd entered into a Farmout Agreement under which Amadeus Petroleum N L is to drill a total of five wells in PEL2, PEL4 and PEL 267 including one at least in each PEL to earn 50 per cent of the crude oil rights only in� a specific area surrounding each well. The economic entity shall retain all gas rights in the PELs.

(c) In August 1999 the controlled entity Sydney Gas Operations Pty Ltd started the drilling of a set of 6 wells in the coal bed methane pilot project in PEL 2.

(d) In September 1999 the Company raised $3,009,000 cash by placement of 3,009,000 fully paid shares at an issue price of $1.00 each. Each share issued under the placement has an attaching option over one unissued share of the Company exercisable at $1.00 on or before 30 September 2002. The funds raised are to be applied to expenditure related to the coal bed methane project in PEL2.

(e) In September 1999 the Company disposed of its interests in the New England Sapphire Joint Venture with the dissolution of the joint venture.

Size of Holding	Number of Holders	Shares Held	%

�� 1�� -�� 1,000	541	442,792	0.59
�� 1,001�� -�� 5,000	2,122	6,847,493	9.08
�� 5,001�� -�� 10,000	1,024	8,803,516	11.68
�� 10,001�� -�� 100,000	1,155	33,845,054	44.88
�� 100,001�� -�� over	94	25,465,193	33.77
	4,936	75,404,048	100.00

�� Share Holder	Number of Ordinary Shares	% Held of Issued Ordinary Capital

Silver Grove Nominees Pty Ltd	2,281,475	3.03
DHOS (P) Pty Ltd	1,300,000	1.72
Westpac Custodian Nominees	1,000,000	1.33
Smart Style Pty Ltd	736,847	0.98
MSJ Capital Pty Ltd	585,800	0.78
Mara Pty Ltd	583,334	0.77
Kevin John Horne	550,000	0.73
Merrill Lynch (Australia) Nominees Pty Ltd	497,010	0.66
Klondu Property Developers Pty Ltd	477,812	0.63
Wolin Investments Pty Ltd	475,000	0.63
Orchard Management Limited	455,000	0.60
Domenal Enterprises Pty Ltd	450,000	0.60
Citicorp Nominees Pty Limited	434,900	0.58
Tower Trust Limited	416,200	0.55
Invesco Nominees Pty Ltd	379,870	0.50
Dermer Evan Smith	365,680	0.48
BDU Pty Ltd	364,430	0.48
Sam Iyer	350,000	0.46
Marcia Lenore Resch	334,000	0.44
Michael Kollaras	332,000	0.44
	12,369,358	�16.39

Size of Holding	Number of Holders	Options Held	%

�� 1�� -�� 1,000	36	28,822	0.19
�� 1,001�� -�� 5,000	226	859,417	5.75
�� 5,001�� -�� 10,000	153	1,306,676	8.74
�� 10,001�� -�� 100,000	248	7,497,825	50.15
�� 100,001�� -�� over	25	5,258,760	35.17
	688	14,951,500	100.00

�� Optionholder	Number of Options	% Held of Issued Options
DHOS (P) Pty Ltd	875,000	5.85
Westpac Custodian Nominees	500,000	3.34
Silver Grove Nominees Pty Ltd	406,250	2.72
Reynolds (Nominees) Pty Ltd	389,400	2.60
Gerendasi Holdings Pty Ltd	300,000	2.01
Bourse Securities Pty Ltd	250,000	1.67
Hedges, Gavin Edwards	206,500	1.38
G H Corporation Pty Ltd	200,000	1.34
Hamergin Pty Ltd	180,000	1.20
Deemreach Pty Limited	170,000	1.14
Garnett Investments Pty Limited	150,000	1.00
Cordoba Cars Pty Ltd	142,500	0.95
Tabak Cement Rendering Pty Ltd	142,250	0.95
Everett Smith & Company Pty Ltd	142,000	0.95
Emery & Judy Feyzeny	139,400	0.93
Invesco Nominees Pty Ltd	132,000	0.88
Joseph Frank & Frances Cachia	125,000	0.84
Graceview Pty Ltd	125,000	0.84
West Coolgardie Holdings Pty Ltd	125,000	0.84
Stone Hausen Pty Ltd	120,000	0.80
	4,820,300	�� 32.23

COAL BED METHANE PROJECT, SYDNEY BASIN, NEW SOUTH WALES

REVIEW OF OPERATIONS (continued)

REVIEW OF OPERATIONS (continued)

John P Castleman Jr � Non Executive Director

Shane M Doherty � Non Executive Director

DIVIDENDS

Quoted

Unquoted

Unquoted Restricted

EVENTS SUBSEQUENT TO BALANCE DATE

CORPORATE GOVERNANCE POLICY

Millennium issue

SYDNEY GAS COMPANY N L

Note

Note

Total Current Assets

Non Current Liabilities

Total Non Current Liabilities

Total Liabilities

Total Equity

Note

Net Cash Used in

EVALUATION EXPENDITURE

Consolidated

Company

16.������ ISSUED CAPITAL

Quoted

Unquoted Restricted

Consolidated

Company

Consolidated

Company

Number

Number

Number

Number

���������� Interests in the securities of the Company held directly and indirectly by the Directors at balance��������������� date are as follows:

Fixed Interest Rate Maturity

Financial Assets

Financial Liabilities

Financial Assets

Financial Liabilities

TENEMENTS SUMMARY AS AT THE DATE OF THIS REPORT

Coal Bed Methane������������ PEL2���������������������������������������������������������� 100%

��������������������������������������� PEL4������������������������������������������������������� 60%/100%

��������������������������������������� PEL267������������������������������������������������������� 82.5%

16.�� ISSUED CAPITAL

�� Interests in the securities of the Company held directly and indirectly by the Directors at balance�� date are as follows:

Coal Bed Methane�� PEL2�� 100%

�� PEL4�� 60%/100%

�� PEL267�� 82.5%