Transerv to acquire 10% gas stake for $3m

West Perth-based freight vehicle maintenance company Transerv Australia Ltd will acquire a 10 per cent interest in the Warro Gas Field - owned by Latent Petroleum Pty Ltd - for $3 million, the company has announced.

In other news, the company has secured Argonaut Capital Ltd as underwriter to a Transerv rights issue offer, raising$3.4 million for working capital.

The full text of a company announcement is pasted below

Transerv Australia is pleased to announce that it has entered into a funding arrangement to secure the right to acquire up to a 10% interest in the Warro Gas Field, Perth Basin, Western Australia. The Warro Gas Field is located onshore in the Perth Basin, approximately 200 km north of Perth on EP 407 and EP 321. Independent geological assessments have indicated that the field could contain between 4 and 7 Tcf of natural gas-in-place and
is located only 30 km from both the Dampier-Bunbury Natural Gas Pipeline (DBNGP) and the Dongara-Perth Parmelia Pipeline. This provides ready access to existing markets which, combined with the significant increases in
WA gas prices and advances in drilling and reservoir stimulation technology, make the Warro Field a very attractive
development opportunity.

Latent Agreement

Under the agreement Transerv will provide a seed capital loan of A$3,000,000 to the Warro project owner, Latent
Petroleum Pty Ltd. At the next stage of project financing by Latent (expected in 2Q 2008) this A$3,000,000 will
convert to an equity interest for Transerv at a 40% discount to the price paid by the next stage investors, i.e. it will
count as A$5,000,000 at the price paid by such investors.

The equity interest acquired by Transerv will be either shares in Latent or a direct interest in the Warro Field
project, whichever is acquired by the next stage investors. If Transerv's equity interest acquired through the
conversion of its $3,000,000 loan is less than 10% of Latent or Warro (as the case may be), Transerv may elect to
increase its interest up to 10%, with the additional equity interest to be acquired at the same price as the next
stage investors.

Latent currently owns 100% of the Warro Field and this project is its sole focus. The capital will be used by Latent
to undertake technical evaluations, permitting, drill and frac planning and initial development studies on the Warro
Field project. This work will enable the drilling of initial wells in 2008 and expedite the production of gas from the
field.

Transerv has also agreed to provide Latent an additional short term working capital loan of up to A$300,000 to be
drawn on only if required prior to completion of the next stage of financing. This loan plus interest at 10% pa is
repayable within 6 months of drawdown.

Argonaut Underwriting

Argonaut Capital Limited has agreed to underwrite Transerv's current rights issue offer. As announced on 18
October 2007, the rights issue comprises an offer of 1 new share for every 2 shares held, at a price of 1.5 cents for
each new share. The record date for the offer was 26 October with the offer document and entitlement forms
dispatched to eligible shareholders on 29 October 2007. The closing date for the offer is 13 November 2007.

227.1 million shares are being offered under the rights issue to raise up to $3.4 million.

Argonaut will receive a fee of 5% on the amount underwritten. Pursuant to the underwriting agreement Argonaut
is entitled to a guaranteed shortfall of 33% of the rights issue offer. Accordingly, if the rights issue shortfall is less
than 33%, Transerv will place additional shares from under its existing 15% directors' capacity to make up the
difference to achieve the guaranteed shortfall position of 33%.

Warro Project History

The Warro Gas Field was discovered by WAPET in 1977 with the drilling of Warro-1, which penetrated several
hundred metres of gas saturated sands in the lower part of the Late Jurassic Yarragadee Formation.

As a follow up to the discovery of this significant gas column, WAPET drilled the appraisal well Warro-2 in 1977/78.
Good gas shows were encountered from 3,780 to TD at 4,854 metres and a number of cores were cut.

Subsequent log analysis showed the presence of gas saturated sands over a 393 metre interval of the Yarragadee
Formation.

The log analysis and core samples demonstrated that the formation was a 'tight gas play', this being gas held
within low porosity and permeability sands. As with other tight gas plays, these sands require reservoir stimulation
to produce gas at commercial rates.

WAPET chose two zones within the Yarragadee for stimulation, which resulted in flows of 104 Mscf/d from the
interval 4091 - 4120 metres and 80 Mscf/d from the interval 3991 - 4073 metres. While these results were
encouraging, they were not deemed commercial at the time.

Technical Advances

As with many tight gas plays of that era, the low flow rates from these tests were misinterpreted to conclude that
the reservoir was incapable of producing at commercial rates. It has since been proven that stimulations
conducted during this era were not effective at the temperature and pressure encountered at these depths. It has
been shown that the fluids used during drilling and stimulation actually had a detrimental impact on the reservoirs
production performance. Petrographic and clay mineralogy studies by CoreLab in 1999, indicate that the Warro
sandstones are susceptible to formation damage by water based drilling fluids, and that the stimulation treatment
used in Warro-2 failed due to the use of water based transport fluids and inadequate proppants.

It is now 30 years since these two wells were drilled and tested. During this time there have been significant
advances in drilling and stimulation technology and the understanding of reservoir properties. Through the
development of under-balanced drilling techniques and advances in fluid technology, tight gas plays now have the
potential to be commercially viable.

Analogous US gas field

The Warro structure is a large compressional anticline with 17,000 acres of four way dip closure, defined by a 2D
seismic grid. The structure is located close to the basin-bounding Darling fault system. In May 2000 a report by
the Scotia Group reviewed the Warro field and compared it to an analogous field being the Jonah Field in southwest
Wyoming, USA. The Jonah Field was also discovered in the early 1970's however, fracture stimulation
treatments were damaging to the formation and wells that tested positive for gas were not deemed commercial. It
was not until the mid 1990's that the field was re-entered and with modern completion techniques Jonah was
established as one of the most prolific gas fields in North America. It presently produces 680 MMscf/d from 2400
wells with total estimated recovery of greater than 14 Tcf.

The Warro 1 and 2 wells have a number of significant similarities to the Jonah Field. In fact some characteristics in
the Warro Field that are considered superior to those found at the Jonah Field. The thickness of the pay intervals
are greater, more laterally continuous and have higher permeability than the Jonah Field. The lateral continuity of
these sands suggest larger drainage areas per well and makes the field a candidate for horizontal drilling, both of
which reduce the number of wells required to develop the field.

Production Potential

To assess the production potential of the field, Schlumberger were commissioned to undertake a Reservoir
Characterisation and Stimulation Evaluation in September 2007. The reservoir simulation work by Schlumberger
indicated that if the Warro wells are successfully stimulated by hydraulic fracturing using the appropriate frac fluids
and proppant, an initial flow rate of between 5 and 7 MMscf/d could be achieved from vertical wells. These wells
could recover approximately 6 Bcf over a 20 year production life. For horizontal wells the simulated production
from a well drilled with a 600 metre lateral section and with four stimulations is projected to be between 15 and 29
MMscf/d. These wells could recover between 26 and 42 Bcf over a 20 year production life. Decline rates for both
well types are modeled to be hyperbolic, being 25 to 30% per year over the first 10 years.

Assuming a well spacing of 40 acres for vertical wells or 120 acres for horizontal wells, the Warro Field has the
potential to host up to 420 vertical wells or 140 horizontal wells. Independent geological assessments have
indicated that the field could contain between 4 and 7 Tcf of natural gas-in-place. The Schlumberger work
indicates that about 50% of this is potentially recoverable. Accordingly, a 10% interest in the Warro Field has
potential to equate to more than 200 bcf of recoverable gas.

WA Gas Market

There have been some dramatic changes in the West Australian domestic gas market in the last couple of years.

Ample supply and competition in the past, led to the gas being the preferred energy source for the large mining
and industrial users in the energy-hungry southwest portion of the state. These industrial users now account for
95% of gas use in the state. However, the rapid growth in demand resulting from the current mining boom,
combined with capacity constraints on pipelines and the increased cost of gas development and production has
seen prices for domestic gas move closer to those of LNG. Contracted gas prices in WA have increased
substantially in recent years from old contract prices of around $2/GJ to be currently being in excess of $7/GJ.

Experienced Project Management

The operator of the Warro project, Latent Petroleum, provides an excellent multidiscipline management team that
covers all facets of an operating exploration and production company. Key management includes Managing
Director - Mr. Stephen Keenihan, Operations Director - Mr. Brent Villemarette, Commercial Director - Mr. Russell
Stephenson and External Affairs Manager - Mr. Monty House. For further details and background information on
Latent Petroleum please visit www.latentpet.com .

Summary

This agreement offers Transerv a unique opportunity to participate in the early stages of a large scale, multi Tcf
gas development in Western Australia. With a large resource base, proximity to major gas pipelines with existing
capacity and Perth, the Warro Field could provide a long term reliable supply of gas to meet the strong market
demand that currently exists and is expected to persist in WA for the foreseeable future.

The technology to successfully drill and produce from this field has been developed and demonstrated over the
past two decades in other parts of the world, specifically with the analogous Jonah Field in Wyoming, USA. The
location of the Warro Field asset and changes in the West Australia gas market make this an excellent time to
pursue this project development opportunity. Transerv looks forward to participating in the development of this
world class asset with Latent Petroleum during 2008.