East Energy Resources holds two Exploration Permits for Coal (EPC's) in the Bowen and Eromanga Basins in Central Queensland. The Capella tenement was the subject of a reconnaissance drilling program in 2009 to identify potential coal targets for more detailed drilling. Recent exploration at the Blackall Coal Project has delineated an Inferred Resource of 1.2 billion tonnes of thermal quality coal defined by an extensive drilling program in 2008/2009.

The Capella Project lies astride the township of Capella. It covers the lower part of the Bowen Basin sediments and has potential for Class I and Class ll coal deposits.

LOCATION AND TENURE

The Capella project area extends from 15km west to 25km east of the township of Capella and is covers approximately 20km from north to south. The area is secured by EPC 1066 of 113 blocks or about 400 square kilometres. The tenement was granted on 26 February 2007. Rail Infrastructure exists at Capella and extends through the western part of the tenement (Figure 2).

GEOLOGICAL DISTRIBUTION OF COAL IN THE BOWEN BASIN

Queensland coals range in age from Carboniferous, 350 million years (Ma) in age, to Tertiary (65 Ma). The commercially significant black coals are restricted to deposits within sedimentary basins of Permian (280 Ma), Triassic (250 Ma) and Jurassic (200 Ma) age, located mainly in the central and eastern portions of the state.

The coal deposits of Permian age are by far the most commercially important. Of the State's black coal inventory in excess of 30 billion (x109) tonnes (measured and indicated resources), Permian coals account for approximately 75% of the total resources, including almost 100% of the coking coal and about 60% of the thermal coal resources. Permian coals within the Bowen Basin in central Queensland account for approximately 70%, of the State's coal inventory, while Mesozoic coals found mainly in the Clarence-Moreton, Surat, Callide and Tarong basins, make up the remainder. Shallow coal potentially amenable to open-cut mining makes up about 55% of the inventory, with the remaining 45% present at greater depths.

The most important Permian coal basin is the Bowen Basin, which is exposed in a large, triangular-shaped area of central Queensland, 600km long and up to 250km wide. The basin extends south in the sub-surface beneath Mesozoic sediments of the Surat Basin, and connects with the Gunnedah and Sydney Basins in New South Wales.

Coal seams in the Bowen Basin exhibit major variations in rank and quality, reflecting both the depositional and tectonic history of the basin. A broad trend of increasing rank from west to east has long been recognised, and was used as a guide for coal exploration targets during the late 1950s and early 1960s.

Along the structurally disturbed north-eastern edge of the Bowen Basin, the coals range in rank from anthracite to low volatile bituminous, and deposits tend to exhibit a complex structure. Coals in the central part of the basin are medium to high volatile bituminous and include the best coking coals. Structural deformation in these deposits is generally relatively mild.

In the southwest, the coal rank falls below the coking range with a consequent loss of coking properties. The more significant deposits in this region are usually low ash non-coking coals and generally are not affected by major structural deformation apart from normal faulting. The westerly decrease in rank continues across the Springsure Shelf and into the Galilee Basin.

EXPLORATION

An exploration drilling program was completed at Capella, EPC 1066, in the Bowen Basin during the middle of 2009.

A total of 16 exploration holes were drilled at approximately 4km centres, to depths of between 100m and 150m. No coal seams were intersected.

Whilst this result was disappointing, the program had been designed to test for the presence of any isolated sub-basin that could potentially contain significant coal seams near the surface. Results from the drilling have shown that this does not occur.

Accordingly , the East Energy board have decided that no further field work will be undertaken at present. The option of exploring for deeper deposits for underground coal or underground gasification is still an option being considered by the board.

LOCATION AND TENURE

The Blackall Project is secured by tenement EPC 1149, covering 300 sub-blocks over an area of approximately 900 km2 in the Eromanga Basin in Queensland. The tenement was granted to East Energy on 22 April 2008 for an initial period of five years.

The area is 65 kilometres south of Blackall township, 177 kilometres north west of Charleville, and 81 kilometres west of Tambo. Blackall is 1,050 kilometres from Brisbane via the Warrego and Landsborough Highways and is 734 kilometres by rail from Gladstone via Rockhampton, Emerald and Jericho. The spur line from Jericho extends to Yaraka 160 kilometres west of Blackall (Figure 3).

The topography consists of gently sloping smooth plains, which are partly dissected by tributaries of the Hope and Ravensbourne Creeks. These flow intermittently and only during the wet season in to the Barcoo River System to the north. Elevations vary from 329 metres in the south to 278 metres in the north.

GEOLOGICAL DISTRIBUTION OF COAL IN THE ADAVALE BASIN

The Blackall Project is located in the Mezozoic Eromanga Basin which is contemporaneous with the Surat Basin within the Great Artesian Basin. The Cretaceous Mackunda Formation has been mapped on the eastern boundary of the project area and extends westerly to Carlow homestead. It is covered in part by Quaternary sediments. Mackunda Formation sediments were not recognised during the 1974 exploratory drilling program.

The Winton Formation crops out over most of the project area. It is sparsely overlain by Quaternary alluvium along creek beds. The maximum known thickness (incomplete) of the Winton Formation is 305 metres and consists of sandstones, siltstones and claystones with some coal seams.

COAL RESOURCES

In early 2009 East Energy Resource Ltd commissioned SRK Consulting to undertake an independent estimate of the EPC 1149 Coal Resources in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), 2004.

The Coal Resources have been estimated from a new and validated geological model based on data collected from exploration drilling conducted within EPC 1149 during 2008.

A total of 224 boreholes were processed during the Resource estimate, 185 of which were used in the geological modelling. A total of 36 core holes with coal quality data have been included in the geological model.

An Inferred Raw Coal Resource of 1.2 Billion tonnes (Bt) has been estimated for the Blackall Coal Deposit. Of this, a total Inferred Raw Coal Resource of 776 Mt has been estimated to occur within a 10:1 cumulative vertical overburden ratio to seam group 4.

The more complete resources statement is available on the East Energy Resources Website under the Media Releases tab.

PROPOSED EXPORATION 2009-10

Exploration drilling completed between June and November 2008 provided a good basis for modeling of the geology and establishing the continuity of coal seams in the southern half of the tenement. SRK Consulting have reported an Inferred Raw Coal Resource of 1,222 Million tonnes (Mt) for the Blackall Coal Deposit and the Company is confident that additional tonnes will be delineated in the northern portion of this tenement, which to date has not been subject to meaningful drilling activity.

SRK Consulting recently completed a geostatistical analysis of the drilling data obtained during the 2008 exploration. They provided East Energy with advice on the optimum drill spacing for future work and this was incorporated into the planning for the current phase of drilling.

Drilling commenced on 15 October 2009 with the aim of defining an Indicated Resource over the southern half of the lease, in the shallower more economically attractive part of the resource.

Coal seam depths and thicknesses in the latest drilling have been found to be generally as predicted from the existing geological model that was produced by SRK using data from the 2008 drilling campaign.

Samples from coal seam intersections have been dispatched to ACIRL in Emerald and early coal quality results are in line with those from last year's work.

Initial exploration drilling to investigate the northern half of the tenement will commence in Quarter 1, 2010.

It is planned to extract a bulk coal sample during Quarter 1 2010 to allow more thorough metallurgical test work to be carried out. A suitable site for the bulk sample is currently being investigated.