Canning Basin Oil and Gas Project (Rey 100%, farm out to 10%)

Rey Resources has two petroleum Exploration Permits (EP457 and EP458) that overlap its coal leases. Rey Resources has entered into a farm-out arrangement with Gujarat NRE Mineral Resources Limited, a significant shareholder of Rey Resources.

A Native Title and Heritage Protection Agreement for the Permits was signed in July 2007 and clearances for geophysical data acquisition in the field are planned for the first half of 2009.

Gujarat has paid $250,000 to Rey Resources and has the right to earn a 90% interest through the expenditure of $4.85 million over five years.

Rey Resources will retain rights to any gas recovered from coals (coal bed methane) together with the utilisation of any coal in any gas or liquid conversion process and will have the right to explore for and deal with any coal and coal seam gas in the permits subject to compliance with all applicable regulations.

The interest of the parties in relation to petroleum production will be 90% Gujarat and 10% Rey Resources, which 10% will be free carried until the grant of a petroleum production license.  Gujarat will have the right to a reimbursement of 10% of the costs incurred to the date of  production.