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Target Energy Limited Issues March 2014 Quarterly Report

WEST PERTH, AUSTRALIA -- (Marketwired) -- 04/30/14 -- US-focused oil and gas producer Target Energy Limited ("Target") (OTCQX: TEXQY) (ASX: TEX) is pleased to issue its Quarterly Report for the quarter ending 31 March 2014.

  • Record oil flows from Sydney #2
  • Wagga Wagga #1 flowing oil after successful frac stimulation
  • BOA North #4 drilled and awaiting Fusselman completion
  • BOA 12 #3 drilled with Wolfberry frac planned for early May
  • New well (Homar #1) added to 2014 Fairway drilling program
  • Company raises A$6m via issue of Convertible Notes

1. Operations

Permian Basin, Texas

1.1. Fairway Project - Howard & Glasscock Counties (Target 45%-60% WI)

1.1.1. Drilling

BOA 12 #3 (Target 60% WI)

BOA 12 #3 is located approximately 550m (1,800 ft) south-east of the Company's 2011 BOA 12 #1 well in Howard County. Drilling commenced on 25 February with the well reaching Total Depth at 3,101m (10,175 ft) on 20 March 2014.

The well has been completed as an oil producer. A fracture stimulation of the Wolfberry section has been scheduled for early May 2014 after testing in the Fusselman Carbonate did not recover commercial quantities of oil.

BOA North #4 (Target 60% WI)

BOA North #4 is located approximately 550m (1,800 ft) north-east of the Company's 2011 BOA 12 #1 well. Drilling commenced on 25 March and concluded with the well reaching Total Depth at 3,093.8m (10,150 ft) on 10 April 2014.

Preliminary analysis of wireline log data has confirmed that the well has encountered potential pay in the Fusselman Carbonate, which has been intersected 8.5 metres (28 feet) updip to the BOA 12 #1 well, as well as in numerous zones within the Wolfberry section. The well has been completed as an oil producer, with testing of the Fusselman section expected to be underway by early May.

Wagga Wagga #2 (Target 45% WI)

The Wagga Wagga #2 well is situated approximately 706 metres (2,316 ft) south of Wagga Wagga #1 in Glasscock County. The well is to be drilled to a depth of approximately 3,048m (10,000 ft) to test the Fusselman and Wolfberry sections. Drilling commenced on 16 April 2014 and at the time of writing the well was drilling ahead at a depth of 1,790m (5,872 ft).

1.1.2. Completions

Sydney #2 (Target 60% WI)

Sydney #2 is located approximately 800 metres east of Sydney #1 in Glasscock County and targeted both the Wolfberry and Fusselman sections. The well has been initially completed as an oil producer from the Fusselman Carbonate with an Initial Production rate of 316 BOEPD (270 BOPD with 277 mfcgd) announced on 19 February 2014 that climbed to a peak of 520 BOEPD (415 BOPD plus 640 mcfgd -- a production record for Target Energy) before easing back and stabilising at approximately 250 BOEPD (200 BOPD with 300 mcfgd).

Wagga Wagga #1 (Target 45% WI)

At Wagga Wagga #1, a 7-stage fracture stimulation of the Wolfberry section was performed on 28 March 2014. The stimulation covered an interval of 470 metres, using approximately 25,000 barrels of load water. To date approximately 45% of the load water has been recovered, with the well averaging 57 BOPD with 127 BWPD over the last seven days (Table 1), with the water cut gradually decreasing.

----------------------------------------------------------------------------
                   Well Reporting Summary - Wagga Wagga #1
----------------------------------------------------------------------------
Name and Type of Well                  Wagga Wagga #1, Oil & Gas producer
----------------------------------------------------------------------------
Well Location                          Glasscock Co, Texas
----------------------------------------------------------------------------
Lease                                  S221, Block 29, A-496; W&NW RR Co
                                       Survey, Glasscock Co
----------------------------------------------------------------------------
TEX Working Interest                   45%
----------------------------------------------------------------------------
Geological Rock Type                   Wolfberry - carbonates, shales and
                                       minor sandstone
----------------------------------------------------------------------------
Depth of Zones Tested                  2,390m - 2,865m
----------------------------------------------------------------------------
Type of Tests Undertaken               Ongoing flow-back after fracture
                                       stimulation
----------------------------------------------------------------------------
Duration of Tests Undertaken           7 days
----------------------------------------------------------------------------
Hydrocarbon Phases Recovered           Oil, Gas
----------------------------------------------------------------------------
Other recovery                         2,992 Barrels of Load Water (total
                                       load now recovered: 45%)
----------------------------------------------------------------------------
Choke Size Used                        On pump
----------------------------------------------------------------------------
Flow Rates                             57 BOPD + 127 BWPD (20 Apr - 26 Apr
                                       2014)
----------------------------------------------------------------------------
Number of Fracture Stimulations        7 zones stimulated
----------------------------------------------------------------------------
Material Volumes of Non-Hydrocarbon    Nil
Gases
----------------------------------------------------------------------------

Table 1

1.2. Forward Program

2014 Drilling Program

A further seven wells are planned to be drilled in the Fairway Project including new wells on the Company's BOA, Ballarat, Bunbury and Taree lease-holdings (Fig 1). A well on the Homar lease (Homar #1) has been added to the drilling schedule to follow Wagga Wagga #2.

2. Current Indicative Drilling Schedule

----------------------------------------------------------------------------
                                                                  Target
     Estimated            Prospect             Location          Working
      Timing*                                                 Interest (WI)
Completion Underway BOA 12 #3               Howard Co, Tx          60%
Completion Underway BOA North #4            Howard Co, Tx          60%
 Drilling Underway  Wagga Wagga #2         Glasscock Co, Tx        45%
      May 2014      Homar #1                Howard Co, Tx          60%
      Q2 2014       Ballarat #1              Glasscock Co          60%
      Q3 2014       Bunbury #1 / Taree    Howard / Glasscock       60%
                    #1 / BOA North #5             Co
      Q4 2014       Darwin #4 / Ballarat  Howard / Glasscock       60%
                    #2                            Co
----------------------------------------------------------------------------

*Timing indicative only - actual order, timing and well selection will vary.

3. Production (1 Jan - 31 Mar)

------------------------- ------ ---------- ---------- ---------- ----------
                                  Gross Gas Cumulative   Net Gas  Cumulative
                                  Prodn in   Gross Gas  Prodn in    Net Gas
         Project          TEX WI   Period      Prodn     Period      Prodn
                                   (mmcf)     (mmcf)     (mmcf)     (mmcf)
------------------------- ------ ---------- ---------- ---------- ----------
Section 28                   25%       22.0    2,364.1        5.5      591.0
East Chalkley                35%        3.5       56.9        1.2       19.9
Merta                        25%        9.2      396.2        2.3       99.1
Fairway+                     60%       48.9      159.2       29.3       95.5
------------------------- ------ ---------- ---------- ---------- ----------
Total                                  83.6    2,976.5       38.4      805.5
------------------------- ------ ---------- ---------- ---------- ----------



------------------------- ---------- ---------- ---------- ----------
                           Gross Oil Cumulative   Net Oil  Cumulative
                           Prodn in     Gross    Prodn in    Net Oil
         Project            period    Oil Prodn   Period      Prodn
                             (BO)       (BO)       (BO)       (BO)
------------------------- ---------- ---------- ---------- ----------
Section 28                       137     90,905         34     22,726
East Chalkley                  2,475    114,246        866     39,986
Merta                             53      5,106         13      1,276
Fairway+                      20,619     92,594     12,372     55,557
------------------------- ---------- ---------- ---------- ----------
Total                         23,284    302,851     13,285    119,545
------------------------- ---------- ---------- ---------- ----------

Net Production is scaled to Target's Working Interest, before royalties; mmcf = million cubic feet; mmcfgd = million cubic feet of gas per day; BO = barrels of oil, BOPD = barrels of oil per day, BOEPD = barrels of oil equivalent per day (Target reports a thermal equivalent when combining gas and oil production, where 1BOE = 6 mcf).

+ The Appendix 5B "Mining exploration entity and oil and gas exploration entity quarterly report" shows revenue for the quarter of $475,000. Revenue proceeds are received two months after the month of production. Therefore the revenue reported in the Appendix 5B relates to production between November 2013 and January 2104, a period in which Permian Basin production was adversely affected by adverse weather and shutdowns. The significant Sydney #2 well did not commence production until late January 2014.

4. Lease Holdings

----------------------------------------------------------------------------
   Project     Lease /   Basin   Description   Depth TEX Royalty Gross  Net
                Unit                          Limits  WI         Acres Acres
----------------------------------------------------------------------------
Fairway
              BOA      Permian  S12, Block      None 60%     25% 640.0 384.0
                                33, T-2S, A-
                                1353; T&P RR
                                Co Survey,
                                Howard Co
              Darwin   Permian  S44, Block      None 60%     25% 640.0 384.0
                                33, T-1S, A-
                                1292; T&P RR
                                Co Survey,
                                Howard Co
              Bunbury  Permian  S102 A-1405;    None 60%     25% 918.0 550.8
                                S103 A-1405;
                                S104 A-1495;
                                Bl 29 W&NW RR
                                Co, Howard Co
              Ballarat Permian  S 184 & 185,    None 60%     25% 355.7 213.4
                                Bl 28, A-815
                                & A-A483;
                                W&NW RR
                                Survey,
                                Glasscock Co
              Taree    Permian  S193, Bl 28,    None 60%     25% 320.0 192.0
                                A-815 and A-
                                A483; W&NW RR
                                Co Survey,
                                Glasscock Co
              Sydney   Permian  S188 Block 29   None 60%     25% 480.0 288.0
                                A-170; W&NW
                                RR Co Survey,
                                Glasscock Co
              Unnamed  Permian  S4, Block 32,   None 60%     25% 610.0 366.0
                                T-2-S, A-
                                1354; T & P
                                RR Co Survey,
                                Howard Co
              Unnamed  Permian  S24, Bl 35 A-   None 60%     25% 260.0 156.0
                                1538; S26 Bl
                                35 A-1415;
                                T&P RR Co
                                Survey,
                                Howard Co
              Wagga    Permian  S221, Block     None 45%     25% 305.0 137.3
              Wagga             29, A-496;
                                W&NW RR Co
                                Survey,
                                Glasscock Co
----------------------------------------------------------------------------
Merta
              Merta    Gulf     S3 A-219       7,650 25%   25.7% 303.0  75.7
              No. 1    Coast    International   ft -
              Well Gas          and Great      7,880
              Unit No.          Northern RR       ft
              2                 Co Survey,
                                Wharton Co
----------------------------------------------------------------------------
Section 28
              SML #A-  Gulf     St Martin Ph    None 25%     28%  40.0  10.0
              1, A-3   Coast
              Unit
              SML #A-2 Gulf     St Martin Ph    None 25%     28%  40.0  10.0
              Unit     Coast
----------------------------------------------------------------------------
E Chalkley
              Unit     Gulf     S11, 13, 14    8,000 35%   30.5% 714.9 250.2
              Agreemen Coast    &15, T12S-      ft -
              t: CK W           R6W, Cameron  10,000
              RA SU             Ph                ft
----------------------------------------------------------------------------
                                                            Total 5626  3017
----------------------------------------------------------------------------

There were no changes in Target's lease-holdings during the reporting period.

Corporate

On 26 February 2014, the Company advised that it had agreed terms with sophisticated and professional investors to raise A$6,000,000 by issuance of a secured, Convertible Note (2014 Convertible Notes).

The issue of the 2014 Convertible Notes took place in two tranches with Tranche 1 of 66 million convertible notes (with a face value of $3.3 million) settled on 5 March 2014 and the second tranche of 54 million convertible notes (with a face value of $2.7 million) issued following the receipt of shareholder approval at a General Meeting held on 4 April 2014. The Company also secured shareholder approval for Target's Chairman, Chris Rowe, to participate in the second tranche. As a result of the early redemption of $600,000 of 2013 Convertible Notes from the Tranche 1 funding, 2013 Noteholders were issued 8,571,428 unlisted options exercisable at 7 cents by no later than 1 Oct 2014. Subsequent to quarter end, as a result of the early redemption of $1,200,000 of 2013 Convertible Notes from the Tranche 2 funding, 2013 Noteholders were issued 17,142,858 unlisted options exercisable at 7 cents by no later than 1 Oct 2014.

The funds raised from the 2014 Convertible Notes are being deployed in the Fairway project in the Permian Basin, where a 10-well 2014 drilling program is underway.

----------------------------------------------------------------------------
                          Key terms of the 2014 Convertible Notes
----------------------------------------------------------------------------
              Instrument  Unlisted convertible notes in Target Energy
                          Limited (Convertible Notes).
          Total Facility  A$ 6.0 million
         Offer Structure  Tranche 1: A$3.30 m (66 million Convertible Notes
                          pursuant to ASX Listing Rule 7.1 capacity)
                          Tranche 2: A$2.70 m (54 million Convertible Notes,
                          approved at 4 April 2014 EGM).
  Max number of Convert.  120 million.
                   Notes
           Maturity Date  31 March 2017 (3 year term).
              Face Value  5.0 cents.
             Coupon Rate  10.0% p.a., payable quarterly in arrears.
        Conversion Ratio  1:1 (Each Convertible Note, if converted, will
                          convert into one fully paid ordinary share of
                          Target Energy (Share)).
              Conversion  Convertible at the election of the noteholder at
                          any time after 6 months from Tranche 1 Settlement
                          Date.
                          Each conversion must be for a minimum of 200,000
                          Convertible Notes and in multiples of 200,000
                          thereafter, or the balance of the noteholder's
                          holding if less than 200,000 Convertible Notes are
                          held or remain.
                          Conversions received during a month will be
                          processed within 5 business days of month end.
   Ranking on conversion  Shares issued on conversion of the Convertible
                          Notes will rank equally in all respects with
                          existing Shares.
         Transferability  The Convertible Notes will be transferable but
                          only to sophisticated or professional investors.
           Voting Rights  The Convertible Notes shall not provide for any
                          voting rights at shareholder meetings of the
                          Issuer.
        Early Redemption  The Issuer may elect to redeem the notes early. If
                          the Issuer redeems the notes early it must repay
                          the Face Value, accrued interest owing on the
                          notes and issue one Unlisted Early Redemption
                          Option in respect of each Convertible Note
                          redeemed, unless the noteholder elects to convert
                          the Convertible Notes into Shares.
                          Each Unlisted Early Redemption Option will entitle
                          the holder to acquire one Share exercisable on or
                          before the Maturity Date at an exercise price of 8
                          cents.
                Security  The Notes are secured by a charge over the
                          Company's interest in the Fairway project.
----------------------------------------------------------------------------

5. Disclosures

----------------------------------------------------------------------------
          Disclosures Pursuant to ASX Waiver dated 6 November 2013
----------------------------------------------------------------------------
2013 Convertible               Date of                   No.       Date of
 Notes            No. Issued    Issue     Face Value   Redeemed   Redemption
                 -----------------------------------------------------------
Face Value of
 7c, maturity 1
 October 2014
                               25 July                             7 March
                 14,285,714      2013      1,000,000 8,571,428       2014
                             15 November
                 11,428,572      2013        800,000
                 -----------------------------------------------------------
                 25,714,286                1,800,000 8,571,428
                 -----------------------------------------------------------


Early Redemption               Date of       No.
 Options          No. Issued    Issue     Exercised
                 -----------------------------------------------------------
Exercise price
 of 7 cents,
 expiry 1
 October 2014
                               7 March
                 8,571,428       2014         0
                 -----------------------------------------------------------
                 8,571,428                    0
----------------------------------------------------------------------------

----------------------------------------------------------------
    Disclosures Pursuant to ASX Waiver dated 6 November 2013
----------------------------------------------------------------
                                                       No. that
                                                        can be
                                                        issued
                                                       before 1
                                                       October
                                                         2014
2013 Convertible                                     pursuant to
 Notes                                               shareholder
                                                      approvals
                                                       and ASX
                                                        waiver
                                No. on                 dated 6
                             Issue at 31               November
                  Face Value  March 2014  Face Value     2013
                ------------------------------------------------
Face Value of
 7c, maturity 1
 October 2014
                     600,000                 400,000
                                             800,000
                ------------------------------------------------
                     600,000  17,142,858   1,200,000           0
                ------------------------------------------------


                                                       No. that
                                                        can be
                                                        issued
                                                       before 1
                                                       October
                                                         2014
Early Redemption                                     pursuant to
 Options                                             shareholder
                                                      approvals
                                                       and ASX
                                                        waiver
                                No. on                 dated 6
                             Issue at 31               November
                              March 2014                 2013
                ------------------------------------------------
Exercise price
 of 7 cents,
 expiry 1
 October 2014

                ------------------------------------------------
                               8,571,428              17,142,858
----------------------------------------------------------------

----------------------------------------------------------------------------
Note: 17,142,858 notes were redeemed on 11 April 2014. 17,142,858 Early
 redemption options were issued accordingly as set out in the Notice of
 Meeting for the AGM held on 14 November 2013.
----------------------------------------------------------------------------

Laurence Roe
Managing Director

NOTE: In accordance with ASX Listing Rules, any hydrocarbon reserves and/or drilling update information in this report has been reviewed and signed off by Mr Laurence Roe, B Sc, Managing Director of Target Energy Limited, who is a member of the Society of Exploration Geophysicists and has over 30 years experience in the sector. He consents to the reporting of that information in the form and context in which it appears.

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Media Inquiries:
USA
Bradley Holmes
Target Investor Relations (Houston)
+1 713 304 6962 cell
+1 713 654 4009 direct

Laurence Roe
Target Energy
+1 713 275 9800 direct

Australia
Ross Dinsdale
Business Development Manager (Perth)
+61 429 702 970 cell
+61 8 9476 9000 direct

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