Bandanna Energy Limited (ASX:BND) Respond to Carbon Tax

Brisbane, July 12, 2011 AEST (ABN Newswire) - Bandanna Energy Limited (ASX:BND) notes the announcement by the Prime Minister of a proposed carbon tax on emissions of greenhouse gases.

Bandanna has undertaken a preliminary assessment of the likely effect of the carbon tax on its projects. At this stage the analysis has only considered the tax effect on fugitive emissions of methane from Bandanna's projects, as this is expected to be the largest single source of Bandanna's greenhouse gas emissions. Fugitive emissions from coal projects are calculated using the methodology prescribed by "the Technical Guidelines for the estimation of greenhouse gas emissions by facilities in Australia" (the Technical Guidelines).

These guidelines are available at climatechange.gov.au

Open Cut Projects

Bandanna has three projects which are either exclusively or initially planned for development as open cut operations - Dingo West, South Galilee and Arcturus.

The Technical Guidelines provide three methods available for calculation. Bandanna has not yet made a decision on which method to use for reporting purposes, however for illustration purposes using method one under section 3.20, Bandanna's carbon tax liability in the fixed price years of the proposed carbon tax scheme would be as follows:

Table 1: Increase in estimated Open Cut Costs (nominal dollars)

-------------------------------------------------Year   Carbon Permit Price  Increase in estimated             ($/t CO2-e)     costs ($/ROM tonne)-------------------------------------------------2012/13        23.00                0.391-------------------------------------------------2013/14        24.15                0.411-------------------------------------------------2014/15        25.40                0.432-------------------------------------------------

In subsequent years, the effect on costs would depend on the market price for carbon permits.

It should be noted that using this method, all open cut coal mines in Queensland are treated as emitting 0.017 tonnes of CO2 equivalent per tonne of coal produced, regardless of the actual quantity of emissions produced. Furthermore, using this method, all open cut coal mines in New South Wales are treated as emitting 0.045 tonnes of CO2 equivalent per tonne of coal produced, regardless of the actual emissions produced. On this basis, although the carbon tax makes Australia's coal industry as a whole less competitive in international terms, Bandanna expects to enjoy a significant competitive advantage over its competitors in New South Wales in respect of the tax payable on fugitive emissions from open cut black coal mines.

Bandanna notes that methods two and three provided by the Technical Guidelines for calculation are based on actual in-situ gas contents at open cut projects, and may result in lower increases in estimated costs to Bandanna. However, Bandanna does not currently hold the information necessary to estimate the effect of the carbon tax using those methods. Bandanna intends to undertake the necessary exploration activity to acquire the additional information, and will adopt the methodology which results in the lowest amount of carbon tax payable.

Springsure Creek Underground

The technical guidelines provide a single method for calculation for underground mines which involves direct measurement of methane emissions in the exhaust ventilation of the mine. As Springsure Creek is not yet operating, direct measurement cannot yet be undertaken, but an estimate can be made based on the in-situ gas content of the coal as measured during exploration.

The in-situ gas content in the Aries 2 seam at Springsure Creek was measured in two boreholes at Springsure Creek - SPR009C and SPR062C. Results determined by gas analysis consultant GeoGAS Pty Ltd are provided in Table 2.

Table 2: Springsure Creek In Situ Gas Content

----------------------------------------------Borehole    Depth (m)      Gas Content (m3/t)                        (Normalised to 15% Ash)----------------------------------------------SPR009C       294m                2.35----------------------------------------------SPR062C       253m                2.50----------------------------------------------

Data on in-situ gas content for coal samples from selected Australian black coal mines has been collated and plotted by Esterle et al (2006). A summary plot from this paper is provided in Figure 1 with the above results highlighted in green. (see link: http://www.abnnewswire.net/media/en/docs/183706.pdf)

In compiling this data, Esterle et al (2006) noted that "although gas emissions behaviour is due to an interplay of factors, virgin coal seam gas content is used as a proxy to demonstrate the inherent variability that will impact upon default estimations of fugitive greenhouse gas emissions from black coals."

Bandanna concludes that when compared to other black coal mines in Australia, the in situ gas content in the Aries 2 seam is:

- Low on an absolute basis; and

- Extremely low for coals found at comparable depths.

Although detailed fugitive gas emission modelling is yet to be undertaken, Bandanna concludes that the fugitive gas emission intensity from Springsure Creek will be low when compared to coal mined from other operations at comparable depths. Bandanna concludes that although the carbon tax makes Australia's coal industry as a whole less competitive in international terms, the effect of the carbon tax imposed on fugitive emissions will provide the Springsure Creek operation with a competitive advantage over most other underground Australian black coal mines in terms of carbon tax payable on fugitive emissions.

Contact

Dr Ray Shaw Tel: +61-7-3041-4400 Andrew Crook Mob: +61-419-788-431 http://www.bandannaenergy.com.au