Cougar Energy Limited and a company associated with Australia Petroleum Ltd. have executed a terms sheet for a proposed 50:50 joint venture for the conversion of underground coal gasification (UCG) syngas to methane.

The Queensland Methane Joint Venture will undertake:

• the assessment of the underground coal gasification (UCG) potential of Cougar Energy’s coal deposit within EPC 1118 at Wandoan for the purposes of producing methane gas;

• the pilot burn at Wandoan using oxygen injection to demonstrate the production of UCG gas suitable for conversion to methane; and

• the development of a methane production facility and potentially an LNG production facility.

The partners have the option to include further coal deposit interests of either party in this project at a later time. Australia Petroleum Ltd. is headed by Brahim F. Wakeem and chaired by Michael Ahern AO (the former Premier of Queensland).

Cougar Energy has previously announced a 341 million tonnes JORC compliant coal resource for EPC 1118. The size of this resource enables Cougar Energy to plan for multiple suitable uses of the syngas generated on site.

Progress at Cougar Energy’s flagship UCG power project at Kingaroy remains on track for commissioning of the pilot (pre-production) plant at the end of February this year.

In December 2009, Cougar executed a Memorandum of Understanding (MOU) with Direct Invest Pte Ltd, the Singapore-domiciled subsidiary of the Direct Invest Group, to establish Cougar Direct Invest China Limited (CDIC) for the purpose of developing Underground Coal Gasification (UCG) projects in China and in Mongolia.