L&M Energy Limited has provided the operational update on its activities. PEP 53247 (Kahili) (LME share: 25%): Preparations for the drilling of the Kahili-2 well within PEP 53247 (Kahili) have been underway for a considerable period. During the preparations it was discovered that the Kahili-1 well, which had been drilled by previous permit holders, was leaking a small amount of gas to the surface. For safety reasons, the Joint Venture partners agreed that drilling would not be undertaken on site until the leak is stopped. Identifying the source of the gas leak, developing appropriate remedial action and liaising with the regulatory authorities has taken a considerable time to finalise. The program to deal with the leak will consist of initially injecting a brine solution to halt the leak. The zone will then be cemented to provide a permanent solution. The remediation work is scheduled to commence in mid-January 2013 when equipment and personnel become available. Kahili-2 is anticipated to commence drilling late February-early March 2013. Background: PEP 53247 (Kahili) is located in the onshore Taranaki Basin. The participants in the permit are L&M Energy Limited (25%), and Mosaic Oil NZ Limited (75%), a wholly owned subsidiary of the Australian company AGL Energy Limited. The Kahili Field was discovered in 2002 and the previous permit holders achieved a brief period of commercial gas and condensate flows. In anticipation of production, a processing facility and pipeline connecting to the gas network was constructed by NGC (now Vector Ltd) and is currently under a care and maintenance programme. In 2011 the Joint Venture acquired over 30km of new high quality 2D seismic, reprocessed over 200km of existing 2D seismic data, undertook a comprehensive geological and reservoir modeling study and mapped an encouraging drilling target, Kahili-2. PEP 51151 (Alton) (LME share: 35%) is located in the onshore Taranaki basin near the highly productive Waihapa, Cheal and Copper Moki oil discoveries, covering an area of 482.4 sq km. The joint venture has completed the field acquisition phase of the 50 sq km regional 3D seismic programme and interpretation of the data is now underway which is anticipated to be completed in the first quarter 2013. The 3D seismic was acquired within the northern part of the Alton permit targeting Mt Messenger, Urenui and Moki plays. Following completion of the interpretation it is hoped that high grade potential drilling locations will be selected to form the foundation of a 2013 drilling program focussing on the Mt Messenger, Urenui and Moki plays. The strategy of using 3D seismic to identify wells that have a well-defined, lower-risk shallow oil target coupled with deeper exploration targets has proven highly successful in adjacent exploration permits including the nearby Cheal, Sidewinder and Copper Moki fields. L&M Energy applied for additional onshore Taranaki permits as part of the New Zealand Petroleum and Minerals (NZPAM) 2012 Blocks offer. The company also announced that the company's Chief Executive Officer, Mr. Kent Anson has decided to return to Australia for personal and family reasons. He will remain with the company until the current takeover offer by New Dawn Energy Limited is concluded. Mr. Anson joined the L&M Group in 2008 to lead the coal seam gas exploration activities. He was appointed Chief Executive of L&M Energy Limited in 2010 following the acquisition of L&M Coal Seam Gas Limited. Mr. Bruce McGregor has been appointed as CEO-designate. Mr. McGregor is currently Chief Financial Officer and company secretary. Mr. McGregor joined the company early 2007 following roles at Fletcher Energy, Shell Petroleum Mining and Austral Pacific.

L&M Energy Limited reported unaudited consolidated earnings results for the six months ended June 30, 2012. For the six months, the company reported revenue of NZD 15,000 compared to NZD 113,000 last year. Loss before income tax was NZD 2,104,000 compared to NZD 3,039,000 last year. Total comprehensive loss net of tax attributable to equity shareholders of the company was NZD 2,104,000 or NZD 0.003 per basic and diluted share compared to NZD 3,039,000 or NZD 0.004 per basic and diluted share last year. Net cash outflow from operating activities was NZD 1,487,000 compared to NZD 2,021,000 last year. Payment for property, plant, equipment and exploration in progress was NZD 202,000 compared to NZD 2,437,000 last year.

L&M Energy Limited announced drilling results for the second quarter of 2012. PEP 53247 (Kahili) is located in the onshore Taranaki Basin. The participants in the permit are L&M Energy Limited (25%), and Mosaic Oil NZ Limited (75%), a wholly owned subsidiary of the Australian company AGL Energy Limited. During the quarter preparations for the drilling of the Kahili-2 well continued with drilling scheduled to be completed prior to year end 2012. If the well is a commercial success the Joint Venture aims to bring the field back to commercial production in 2013 via the existing production station. The Kahili Field was discovered in 2002 and the previous permit holder initially achieved commercial gas and condensate flows. In anticipation of production, a processing facility and pipeline connecting to the gas network was constructed by NGC (now Vector Ltd) and is currently under a care and maintenance programme. In 2011 the Joint Venture acquired over 30km of new high quality 2D seismic, reprocessed over 200km of existing 2D seismic data, undertook a comprehensive geological and reservoir modeling study and mapped an encouraging drilling target, Kahili-2. As previously announced, the company secured AUD 5 million in interim funding from the Chairman, Mr. Geoff Loudon, to enable it to progress with its exploration commitments and pursue near term growth opportunities.