1st Quarter Results

31 January 2008 ELIXIR PETROLEUM Ltd (AIM: ELP) QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDED 31 DECEMBER 2007 Elixir Petroleum Limited ("Elixir" or "the Company") is pleased to provide its quarterly update on activities for the period ending 31 December 2007, as required by the Australian Stock Exchange. HIGHLIGHTS * Merger with Gawler Resources Limited ("Gawler") finalised * Achieved maiden gas and condensate production and receipt of first sales proceeds from the High Island field * Pompano Well #1 intersected commercial gas pay in the primary target sands and operations to complete Well #1 as a producer commenced in late January 2008 * Pompano Joint Venture participants have elected to exercise the option over the Hercules drill rig to drill the Pompano Well #2 immediately following the completion of the Pompano Well #1 * Promote Licence P1401 (Block 13/25) has been merged with Petro-Canada's Promote Licence P1459 (Block 13/24d) and the merged blocks converted to a single traditional licence * Farm out activities continue on several UK North Sea licences * Appointment of new Chairman and Managing Director and strengthening of executive management team STRATEGY Following the completion of its merger with Gawler, Elixir is now an internationally focused upstream oil and gas company with a diversified portfolio of interests across the exploration and production lifecycle. Elixir's business strategy is to acquire interests in high impact exploration prospects in the North Sea and elsewhere. This strategy has been supplemented by the addition of lower risk oil and gas development projects with appraisal upside located in the shallow waters of the Gulf of Mexico. These projects demonstrate a short cycle time to production providing better cashflow sustainability for the Elixir Group. The Board of Elixir considers it important to remain flexible in the pursuit of new business opportunities that are judged to be complementary to its existing business activities and able to deliver superior growth in shareholder value. CORPORATE Merger with Gawler Resources On 23 March 2007 Elixir and Gawler announced their intention to merge. The proposed merger was to be implemented by a Scheme of Arrangement ("Scheme"). Meetings of the different classes of Gawler security holders to vote on the merger proposal were held on 19 October 2007, with security holders voting overwhelmingly in favour of the merger. Federal Court approval of the merger was obtained on 25 October 2007 and Gawler was suspended from quotation on the ASX on 26 October 2007 pending the completion of the merger arrangements. Scheme consideration, being shares and options in Elixir, was issued to Gawler security holders on 13 November 2007 and the new shares in Elixir were admitted to trading on the ASX on 14 November 2007. Elixir, as enlarged by the merger, will continue to maintain its listings on the ASX and AIM markets. Board Appointments As disclosed in the Scheme booklet, on the completion of the merger the composition of the Board was revised with the appointments of Mr Jonathan Stewart, Mr Andrew Ross and Mr Trevor Benson, as directors of the Company, and Mr Alex Neuling as company secretary. In conjunction with these appointments, Mr Kent Hunter stepped down as a non-executive director of the Company and as company secretary. In late November the chairmanship of the Board was passed from Mr John Robertson to Mr Jon Stewart. With the finalisation of the merger, and having a desire to pursue alternative business opportunities in Australia, Mr Russell Langusch took the opportunity to step down as the Company's Managing Director. Mr Ross was appointed Managing Director of the Company on 29 November 2007. The Board is especially grateful to Mr Langusch for his efforts during his three year period as Managing Director of the Company and wishes him well in his future endeavours. Following the finalisation of the merger, Elixir has recruited several new senior upstream petroleum industry professionals to its management team and is looking to grow its presence in both the UK and the US. OIL AND GAS PROJECTS Gulf of Mexico Project Name High Island Project (Block 268A) Location High Island Area, offshore Texas, USA Ownership 30% Working Interest (subject to "back-in" of 5.4% after cost recovery) Operator Peregrine Oil and Gas LP As previously reported, the High Island A-1 and A-2 wells were successfully completed and placed on production on mid-September 2007. Each of wells, A-1 and A-2, discovered gas and condensate pay in two separate accumulations, although each well is currently only producing from the lower of the two reservoir zones. In the 14 weeks of production to 31 December 2007, wells A-1 and A-2 in the High Island field produced a cumulative total of approximately 1,560 MMscf of gas and 20,840 Bbls of condensate. Average daily production for the relevant period was 14.5 MMscf of gas per day and 194 Bbls of condensate per day. The average daily production results have been adversely affected due to a number of days of downtime in October relating to operational difficulties experienced by the owners of the regional processing facilities through which the High Island production is exported. These issues appear to have now been resolved, with a satisfactory uptime result for the month of December of 99%. We have been advised by the operator that the average price realised for the sale of gas produced in September was US$6.18/mcf and for condensate was US$79.27/Bbl. The average price realised for the sale of gas produced in October was US$6.62/mcf and for condensate was US$83.13/Bbl. Sale proceeds for the month of September and October totalled approximately US$1.03 million. As at the date of this report, sales prices and sales totals achieved for production in the months of November and December were not yet available from the operator. Production of gas and condensate from Well A-2 remains relatively stable, although the well is exhibiting a slow, natural decline in production over time, which is in accordance with expectations. As at the end of the quarter, Well A-1 was also producing relatively stable volumes of gas and condensate. However, following the end of the quarter to late January, we have observed a significant increase in condensate and water production from Well A-1. It is believed that this is due to the presence of a thin oil rim that overlays the water leg in the reservoir. Following three months of production from Well A-1, it is thought that the gas / water contact in the reservoir has now risen such that the oil rim and underlying water leg is being accessed and produced by the well bore. The increase in condensate and water production has reduced the ability of the well to produce gas from the lowest perforated interval in the well. Consequently, along with the increase in condensate and water production, we have observed a decline in gas production from Well A-1 in January. At the end of January it appeared that both gas and condensate rates might have again stabilised, with water production possibly exhibiting signs of decline. Our view is that the majority of the gas not being produced by the well at this time due to the production of additional condensate and water is merely deferred, and not lost. The High Island joint venture has agreed to continue to produce the lowest zone in Well A-1 to attempt to recover as much condensate as possible. If over time the well bore continues to load up and is not able to continue to lift the volumes of condensate and water delivered by the reservoir at this level, the sliding sleeve over the lowest perforations in the well would be closed and a sliding sleeve approximately 50 feet shallower up the wellbore, but still in the same reservoir zone, would be opened. In undertaking this operation, it is anticipated that higher gas flow rates would be re-established in Well A-1. Elixir holds a 30% working interest in the High Island Project. Federal and other royalties on production equate to 25% giving a net revenue interest to Elixir of 22.5%. Elixir's 22.5% net revenue interest will be reduced to 19.6% pursuant to a 'back-in' arrangement once Elixir has recouped 120% of its initial investment in the project. Project Name Pompano Gas Project (Block 446-L SE/4) Location Brazos Area, Offshore Texas, USA Ownership 25% Working Interest (subject to "back-in" of 5.5% after cost recovery) Operator Ana Texas Offshore Inc. The Pompano gas field lies in the Gulf of Mexico, in Brazos Block 446-L SE/4, which is approximately 90 miles southwest of Houston, Texas. The field is approximately 7 miles offshore in 55 feet of water. The operator of the project is a private US company, AnaTexas Offshore Inc. The Pompano gas field was discovered in 1966 and produced over 120 billion cubic feet of gas prior to being shut-in in 2003. The Pompano Project is essentially a re-development of the Pompano gas field with new well locations based on modern 3D seismic data. The first well on Pompano, SL103229#1 ("Well #1"), was directionally drilled from a new caisson installed adjacent to the field's existing "B" satellite platform during the quarter. Well #1 was designed to test several potentially gas bearing sands located between 3,800 feet and 7,900 feet Measured Depth. The Pompano Project is able to use the field's extensive existing production, infield flowlines and export pipeline facilities. This will achieve a significant capital cost saving and a reduction in time to production for the project. Development planning activities for Well #1 were concluded during the quarter. In field activities, a new caisson was fabricated and installed in the field and the negotiation and finalisation of a drilling rig contracted. Well #1 reached total depth on 26 January 2008 at 7,821 feet Measured Depth. Gas returns in the mud were encountered whilst drilling the primary targets. Several zones were logged while drilling and were found to be gas bearing in the 6,700 sands, the A sands and the B sands. Following measurement of formation pressures, the logged pay encountered was considered commercial and the joint venture elected to complete Well #1 as a producer. Completion activities have commenced on Well #1, together with platform and flow line refurbishment activities. It is expected that the completion of Well #1 will be finalised by the end of February. The Pompano joint venture participants have also elected to exercise the option held over the Hercules drill rig currently on Well #1 and will drill Well #2 at Pompano immediately following completion of Well #1. Elixir holds a 25% working interest in the High Island Project. Federal and other royalties on production equate to 27.5% giving a net revenue interest to Elixir of 18.125%. As part of the acquisition terms, Elixir has also agreed to a 'back-in' whereby Elixir will re-convey 5.5% of its 25% working interest in the Pompano Project to the vendor and the project introducer once Elixir has recovered from hydrocarbon sales 120% of the purchase price paid to the vendor in acquiring the interest, and 120% of the cost of Elixir's investment in the construction and operation of the first six wells drilled in the field. UK North Sea Project Name Leopard Prospect (Block 211/18b) Location Northern UK North Sea Ownership 56% Working Interest Operator Elixir Petroleum Limited Block 211/18b (Licence P1381) is a traditional licence awarded in the 23rd Seaward Licensing Round in December 2005. The initial interest holders in P1381 were Elixir (80%) and its joint venture partner, Sosina Exploration Ltd ("Sosina") (20%). Under the terms of a farm in agreement finalised with RWE Dea UK SNS Limited ("RWE") in August 2007, RWE have secured a 30% interest in Block 211/18b by contributing on a promoted basis to the cost of drilling an exploration well on the Leopard prospect within the block. Efforts to secure another farminee in order to largely cover Elixir's and Sosina's cost exposures in the proposed Leopard well are ongoing with several companies currently assessing the opportunity. Additional seismic reprocessing was undertaken in the quarter relating to a site survey required prior to drilling operations commencing. The availability of suitable drilling rigs has improved over recent months with several wells slots becoming available during 2008. Provided that the Leopard farmout can be concluded in the coming months, we remain confident that the well will be drilled during Q3, 2008. Project Name Mulle Prospect (Block 211/22b) Location Northern UK North Sea Ownership 40% Working Interest Operator DNO (UK) Limited Technical work has now been completed on the post drill results of the Jaguar well drilled in this Block. The well failed to encounter hydrocarbons in its primary target; however it encountered significant hydrocarbon shows in the Brent Formation. Further technical work has indicated the potential for oil entrapment up-dip of the Jaguar location. This up-dip accumulation potential has been named Mulle by the joint venture. The Mulle prospect will require an appraisal well to be drilled to test its prospectivity and the Company is actively pursuing partners to drill an appraisal well on the structure. Project Name Bobcat Prospect (Block 21/16b) Location Central UK North Sea Ownership 40% Working Interest Operator Elixir Petroleum Limited Good progress has been made on Promote Licence Block 21/16b during the quarter with all pre-requisite technical work having been finalised to allow farm out activities to commence. State-of-the-art fluid inclusion studies of a number of wells already drilled in the area have demonstrated the movement of hydrocarbons through the area and proved a hydrocarbon migration pathway across the block. The studies have also revealed that a historic well drilled on the block that was formerly thought to be a dry hole, in fact contains hydrocarbon shows and provides additional support for the Bobcat prospect. A data room will be opened and farm out activities formally commenced in February 2008. Project Name Fat Cat Prospect (Block 13/25) Location Central UK North Sea Ownership 25%, reducing to 12.5% Working Interest Operator Petro-Canada Block 13/25 (Licence P1404) is a promote licence that was awarded in the 23rd Seaward Licensing Round in December 2005. During the quarter the joint venture agreed to a proposal to merge Block 13/25 with the adjacent Block 13/24d (Licence P1459), which is owned and operated by Petro-Canada. An application made by the licence holders to merge the two promote licences to form a new traditional licence was approved by the Department of Business, Enterprise & Regulatory Reform ("BERR", formerly the DTI) in late November 2007. This has enabled the holders of both licences to avoid relinquishment of the promote licences, while assuming a contingent obligation to drill one well on the merged licence. It is felt that combining the promote licences may also increase the prospect that, if a discovery were made on the licence, it would be sufficiently large to enable commercial development and exploitation. As a part of the block merger process, an application was made to BERR to relinquish approximately 30% of the northern part of Block 13/25 in early January 2008. Following the approval of the merger of the two promote licences by BERR, Elixir's interest in the merged block is now 12.5%, and Petro-Canada has assumed operatorship of the block. High resolution 2D data has been acquired over Blocks 13/25 and 13/24 by Petro-Canada. The 2D seismic data has now been processed and will be interpreted by the end of Q1, 2008. Relinquishments At the conclusion of the quarter under review, Elixir was advised by the operator of Blocks 43/7 and 44/27b located in the Southern North Sea, that farminees had not been able to be secured to drill identified gas prospects within the blocks prior to the date for relinquishment of the licences. Consequently, Elixir's 33.33% interest in each of these two promote licences was relinquished at the end of December 2007. Block 211/8b (Licence P1379) is a Promote Licence awarded in the 23rd Licensing Round in December 2005. Under the terms of the Promote licensing scheme, a drilling commitment or similar substantial work programme is required by BERR by the second anniversary from licence award. Efforts to secure a farminee to the Panther prospect identified within Block 211/8b were ultimately unsuccessful and, therefore, as at year end, Elixir has commenced the formal relinquishment of this block. MINERAL ASSETS As a result of the merger with Gawler, Transition Resources Limited ("Transition"), a wholly owned subsidiary of Elixir, now holds on trust on behalf of prior Gawler shareholders a number of mineral licences located in the Northern Territory and South Australia. It is expected that the shares in Transition held by Elixir will ultimately be demerged from the Elixir Group in favour of former Gawler shareholders, which includes Elixir in its own right. Once this has occurred, a capital raising will be undertaken by Transition, which will also be seeking the admission of its shares to trading on the ASX. A short review of activities undertaken in the quarter associated with the mineral licences is included for the sake of completeness. Project Name Pine Row Project (EL 3648) Location Eyre Peninsula, South Australia Gawler Ownership 100% Working Interest Exploration Licence EL 3648 covering the Pine Row Project (75 km2) was granted in December 2006 for a 12 month period. The licence area is considered to be prospective for base metals, vein style uranium mineralisation and iron ore. Following activities undertaken during the first year of tenure, the licence was recently renewed for a further 12 months. During the quarter under review, a high resolution satellite imagery study was conducted over the licence area to define targets for investigation during a 10 day field work programme, which was undertaken in December 2007. In addition to the investigation of the targets defined by the study, previous historical work was verified and geochemical sampling and mapping of the lesser explored areas of the licence carried out. Samples collected during the field programme have been submitted for analysis and the results of the analysis are expected in the first quarter of 2008. Project Name Roxby Project (EL 3667, EL 3668, EL 3669, EL 3670) Location Gawler Craton Region, South Australia Gawler Ownership 100% Working Interest Exploration Licences EL 3667, 3668, 3669 and 3670, covering the Roxby Project, were granted in December 2006 for an initial licence period of 12 months. The Roxby Project encompasses an area of 3,709 km2 in the Gawler Craton region of South Australia. The Roxby Project is considered to be prospective for iron oxide-copper-gold-uranium ("IOCG-U") Olympic dam style mineralisation. The area also has potential for diamondiferous kimberlite pipes and disseminated base metal deposits. During the quarter, Gawler completed a review of the exploration data associated with the licences and is designing an exploration programme for the area. Gawler also held discussions with several interested parties with respect to a possible farm-in to the Roxby Project. The renewal of these licences for a further 12 month period is currently pending. Amadeus Project EL 25260 Location Amadeus Basin, Northern Territory Gawler Ownership 100% Working Interest The Exploration Licence EL 25262, covering the Amadeus Project, was granted in February 2007. The licence is for a period of six years. EL 25260 covers an area of 239 km2, and adjoins Gawler's exploration licence application ELA 25262, which covers an additional area of 1,250 km2. The award of ELA 25262 is currently pending the receipt of Aboriginal Land Rights clearances. The Amadeus Project is prospective for sandstone-hosted roll front uranium mineralisation and lies approximately 25 km due east of the Pamela and Angela uranium deposits. The compiling of a comprehensive GIS data library was has been completed and discussions with potential farminees kicked off, with a view to in field exploration activities commencing in the first half of 2008. Ngalia Project EL 25261 Location Ngalia Basin, Northern Territory Gawler Ownership 100% Working Interest The Exploration Licence EL 25261, covering the Ngalia Project, was granted in February 2007. The licence is located approximately 65 kms west of the Pamela and Angela uranium deposits. The licence covers an area of 820 km2 and has an initial term of 6 years. Ngalia is thought to be prospective for sandstone-hosted roll front uranium mineralisation. The compiling of a comprehensive GIS data library has been completed during the quarter and discussions with potential farminees commenced with a view to in-field exploration activities occurring in the first half of 2008. FINANCIAL SUMMARY At the end of the December 2007 quarter, Elixir held cash on hand of approximately A$2.5m. First sales of production from the High Island Project commenced in mid-September 2007, with first sales receipts received in December 2007. In the month prior to the completion of the merger, Gawler received additional funds of approximately A$2.7m from the exercise of listed options by Gawler option holders. During November 2007, the holders of 10.7 million unsecured convertible notes elected to convert their notes into fully paid ordinary shares in Elixir at the agreed conversion price of A$0.25 per share. This election to convert occurred approximately one year ahead of the maturity date for the convertible note instrument, thus extinguishing approximately A$2.7m of debt. Between quarter-end and the date of this announcement, Elixir has received sales receipts of in excess of US$800k in respect of October 2007 production from High Island. As announced on 25 January 2008, Elixir's cash position will be further strengthened by the agreed issue of 8.6 million unsecured convertible notes to Macquarie Bank Limited at a subscription price of A$0.35 to raise approximately A$3.0m. Please find attached the Company's Appendix 5B for the 3 months to 31 December 2007. For further information please contact: Elixir Petroleum Limited Alex Neuling, Company Secretary +61 8 9440 2650 Bankside Consultants Michael Padley / Louise Davis +44 207 367 8888 Seymour Pierce Limited +44 207 107 8000 Jonathan Wright/ Sarah Jacobs Pompano Project - Background The Pompano gas field lies offshore in the Gulf of Mexico, in Brazos Block 446-L SE/4, which is approximately 90 miles southwest of Houston, Texas. The field is approximately 7 miles offshore in 55 feet of water. The Pompano gas field was discovered in 1966 and has produced over 120 billion cubic feet of gas prior to being shut-in in 2003. The Pompano Project is essentially a re-development of the Pompano gas field with new well locations based on modern 3D seismic data. Well #1 has been directionally drilled from the field's existing "B" satellite platform to 7,821 feet measured depth. Well #1 was designed to test several potentially gas bearing sands located between 3,800 feet and 7,900 feet measured depth. Several of these sands have been productive down dip of the Well #1 location, or nearby within the Pompano field. The Pompano Project will use the field's extensive existing production and pipeline facilities. This will achieve a significant capital cost saving and a reduction in time to production for the project. Information contained in this report with respect to the High Island and Pompano Projects and the Australian mineral licences, was compiled by Elixir or from material provided by the project operators and reviewed by P D Allchurch, BSc, FAIMM, MPESA, who has had 40 years experience in the practice of geology including more than 5 years experience in petroleum geology. Mr Allchurch consents to the inclusion in this report of the information in the form and context in which it appears. Information contained in this report with respect to the UK North Sea Projects, was compiled by Elixir or from material provided by the project operators and reviewed by the Elixir's Exploration Director, Iain Knott, BSc,MSc, FGS, AAPG, who has had 25 years experience in the practice of geology including more than 5 years experience in petroleum geology. Mr Knott consents to the inclusion in this report of the information in the form and context in which it appears. ---END OF MESSAGE---