01 MANAGING DIRECTOR'S REPORT

Linc Energy is focused around three key energy drivers.

Coal

The sale of certain coal assets will add immediate cash onto our balance sheet whilst we retain core coal assets for our clean coal UCG business. Linc Energy owns or controls approximately 23,829,437 acres (96,475 km2) of coal tenements globally.

Oil and Gas

Oil allows Linc Energy to develop a strong cash flow strategy. The potential to buy cost effective, cash flow positive oil assets, with the ability to increase production by operational expansion and EOR potential, coupled with a strong Australian dollar and low interest rates, is ideal at the moment. Oil will be a significant cash flow driver for the business for many years to come.

Clean Energy

Clean Energy is the future; otherwise the cost of energy will just continue to rise to the point that it will become unaffordable for the vast majority, which would be a disaster. It’s one of the generational answers the world is seeking, and it has always been Linc Energy’s goal to drive the development of its clean fuel technology so it’s affordable and easy to replicate across multiple locations. Linc Energy’s commitment is to continue to be at the forefront of delivering cleaner energy answers to be part of the solution, not the problem.

Our new business model will allow the company to grow faster and create cash flow faster, whilst growing a larger clean energy division at the leading edge of the world’s energy solution mix.

This plan provides our shareholders with the enormous potential of both our Oil and Gas division and Coal division, whilst also securing the longer term potential of our significant Clean Energy division to pave the way for the next generation of energy. It’s a dynamic and proactive business strategy that creates cash and growth today on our balance sheet via our coal sales, cash flow for years to come via oil and gas production, with cash flow and growth for generations ahead with the Clean Energy division.

I’m also very passionate that as we execute the new Linc Energy strategy, that we simultaneously grow an empowered and dynamic culture within Linc Energy with six key points driving the company’s attitude. These are:

1. Focus – That everyone in every role knows exactly what they should be doing and why they are doing it.

2. Execution – To focus on what needs to be done and do it. Efficient, fast execution is the key to our success! Everyone in every role in the company understands the company’s strategy and plan and how they immediately fit into that plan by what they do both now and in the future.

3. Purpose and Measurement – That everyone in every role in Linc Energy has a set of objectives to focus on and that those objectives are measured at least every 90 days.

4. Rewards and Consequences – That everyone knows that failure to achieve their key objectives will have consequences to Linc Energy as a whole, and therefore also for their teams and themselves personally. Our performance review process and employee incentive scheme will recognise performance against objectives as a key performance indicator for every member of staff.

5. Entrepreneurism and Empowerment – Linc Energy encourages and empowers its people to act entrepreneurially within their focus area and promotes all its managers to empower each person at every level of the business and encourage them to improve every level of the Linc Energy business.

6. Communication and Culture – Linc Energy has a process to ensure that open communication is promoted and encouraged, with an avenue for everyone to voice their observations and thoughts at least every 90 days. On top of this, the company has a proactive means of communication via the corporate intranet, staff newsletters and InvestorLinc, but most of all, via our regular XGAP meetings and reviews.

You might wonder how we manage this and keep the company on track. The answer is a management tool I’ve introduced. Called XGAP, which is short for ‘execution gap’, this process provides us with a means of managing the gap between the setting of our key goals and the multiple points of execution required to achieve the goal. It is my aim to ensure that we as a company employ a set of key management tools to ensure focus on our key goals and that we are executing our plan to achieve these goals in smarter ways with shorter timeframes to drive costs down and achievements up. This process also becomes a great tool for the management team to ensure that the goals and objectives chosen are indeed the right goals and objectives at the right time.

It’s impractical to go into too much detail regarding XGAP but in summary the key executive group come together every 90 days at an off-site workshop. We review what has happened in each division of the business and query whether those key managers have met their 90 day targets and if not, why not? At the ‘why not’ stage, the key ‘blockages’ are brainstormed by the whole group until resolved. Most times the problems that stopped

a manager meeting a goal are resolved in the room that same day. We then do a similar review on top issues for the whole company i.e. ‘what key area needs fixing right now?’ It could be anything from communication to budgeting. At this point, everyone gets to say openly and honestly what they’re thinking on any issue to do with their job or Linc Energy. We also focus on re-setting 90 day targets and get the second level management involved so they too are briefed and have input into exactly what’s required and by when over the next 90 day period.

Once all the goals are set, they are reviewed so that they align with the company’s strategy and key objectives, and the relevant division’s key objectives. If agreed, they are signed-off by everyone. This process is repeated as a workshop in every division of the company and at every level.

XGAP is a powerful tool for Linc Energy. It ensures our key goals are met and executed across the company. It’s also an explanation of how we can execute across several objectives at once, which really comes down to our key managers being very good at what they do and taking responsibility for the focus and execution of their key goals.

I mentioned frustration in the first paragraph of this message and I must say upfront my frustration is mostly caused by external sources. Take for a moment the issues of the Resource Super Profits Tax (which made life difficult for a few weeks), then the Queensland floods, which didn’t stop Linc Energy, but was a very difficult period at the beginning of the year. Then the European debt crisis (which appears to be ongoing). Then came the carbon tax followed by another ‘market correction’. And let’s not leave out the Queensland Government’s handling of the developing Queensland UCG industry and the perceived bias to coal seam gas. Finally let’s not forget the United States debt ceiling crisis.

This is not a political rambling (though you’d be forgiven for thinking so). This is a small example of the ‘frustration’ that makes growing any business that much more difficult.

Yes, all of this has affected Linc Energy’s share price but I’m not going to use it as an excuse. I’ve identified other key areas to improve our share price performance. The first is I personally need to go back on the road and participate in the shareholder road shows that drove and supported our stock price originally (I delegated this role in December 2010 so I could focus on the business plan execution).

Secondly, the market needs to clearly assess the value inside the company which is one of the reasons we’ve restructured the company as we have. You can now clearly see the structure, the assets, the milestones and achievements with the value of the business and its assets becoming much clearer.

Thirdly, our communications to the market need to be made more often, more clearly and more aggressively across a range of mediums. You should already be seeing significant improvements in this area with more to come.

I would like to bring to your attention a few more highlights that were achieved as a company over the last twelve months.

I’m pleased and proud to say that for the third year in a row Linc Energy is at zero staff lost time injuries. This means we had no meaningful accidents or injuries across the business for the period, which again is a fantastic achievement by all involved, but more importantly the credit must go to the teams at our sites around the globe that ensure we are doing the right thing.

We did have one contractor incident during our South Australian drilling program which, whilst not acceptable, still needs to be placed in context

by appreciating just how many drill rigs and pieces of equipment are coming and going across the country.

Most of you also know that I drove the Linc Energy diesel VW Polo vehicle 6,000 kilometres across Australia from Chinchilla to Perth. Again this is a great achievement by all involved. The diesel we produced at our Chinchilla UCG to GTL facility using our own UCG gas produced from our own coal was a huge milestone. It was the culmination of many years work and some significant achievements. We are still ongoing with our pursuit for a better UCG platform and whilst Gasifier 4 has been continuously operating since February 2010, we have just unveiled our new Gasifier 5 UCG operation at Chinchilla. This is the most advanced UCG process to date which makes more gas at a lower cost, whilst being even simpler to operate and monitor. Gasifier 5 is our commercial UCG model and is the UCG platform we will be rolling out in commercial operations around the globe as part of our clean energy business plan. On the back of the UCG achievements of late, Linc Energy has also made significant strides in its GTL program and in particular, its drive to design and develop a replicable low CAPEX modular GTL facility. This work is ongoing of course.

Other UCG news is that we have defined and submitted our permits for our first overseas UCG site. The Wyoming UCG operation has had a huge amount of background environmental and design work applied to it over these past few months including a significant amount of drilling. We expect Linc Energy to break ground on drilling of the first Wyoming UCG site in late December this year (final approvals and weather conditions permitting).

In our push to create a meaningful oil and gas division as per our business plan, Linc Energy has purchased the Umiat oil field in Alaska. This oil field has already been drilled and has an indicative billion barrels of original oil in place.

We will commence drilling the Umiat location later this year with the aim of converting a greater amount of that oil into 1P and 2P reserves. The second step, already in planning, will be to permit and build a pipeline approximately 90 miles from Umiat to the Trans-Alaska Pipeline System to accept at least 50,000 barrels of oil production per day.

Earlier this year, we also purchased the Glenrock (Wyoming) oil assets (acquired from Rancher Oil Corporation) giving us potential long term oil production of 70 million barrels of oil via carbon dioxide injection with potential production of over 10,000 barrels of oil per day. This asset already has production of approximately 200 barrels of oil per day and has further oil potential from the Niobrara Formation which we intend to drill early next year. The carbon dioxide enhancement pilot is well progressed and we look forward to making further announcements on this project in the future.

We also completed our first gas well in Alaska with the drilling of LEA 1. Unfortunately LEA 1 wasn’t successful in locating a commercial gas reserve, but we learnt a great deal from this exercise, some of which will be used on the Umiat oil field.

Keeping on the oil theme, we commenced our largest drilling program in South Australia on our Arckaringa Basin oil and gas leases, exploring for oil, gas, coal and shale oil. In the same region we also completed a seismic program of over 1,000 kilometres which has located several more exciting oil targets in the area.

We’ve also expanded our global reach with new offices being opened in Houston (Texas), Baton Rouge (Louisiana) and London. As the company grows, so too does the Linc Energy team. Following proposed further acquisitions, Linc Energy will have around 500 staff – a long way for a company that started with only a handful of people just over five years ago.

September this year marks the 50th anniversary of UCG commercial operations at Yerostigaz (pronounced You-ros-t-gas) in Uzbekistan. This is an astounding achievement for the men and women who have toiled away in that UCG field near Angren for over two generations. They have consistently produced more than one million cubic metres of UCG gas per day, every day, to operate an adjacent power station. The challenges these incredible people have overcome over these generations is an amazing testament to them and to UCG technology itself. This UCG field operates in minus 40 degree Celsius winter temperature and in the 40s in summer, with few tools and resources. Yet they, and the UCG process, have won over these past 50 years. Congratulations to everyone at Yerostigaz. Linc Energy and I are very proud to have had the opportunity to have played some part in this successful history of UCG on that site.

Again, we all know about the sale of the Galilee coal asset to Indian group Adani. That has been a very successful move for Linc Energy. In addition to this, Linc Energy has now narrowed down its prospective buyers for the Teresa coal asset. I hope that we may be able to announce a final deal on this asset in the very near future.

We will continue drilling up more areas within our significant Australian coal lease footprint for potential future development, and will continue to seek to monetise non-core, traditionally mineable coal assets into the future to support our strategic goals.

I mentioned the floods in Brisbane and Chinchilla earlier this year. I’d like to thank the Linc Energy staff who went far beyond the call of duty to help their team members both at work and when we were personally threatened. Also, Linc Energy and its staff were one of the first to donate to the Queensland Premier’s Flood Appeal to help rebuild our communities again. I thank all of you, as Chief Executive Officer, and personally as someone who lost their home due to the floods and received kindness, help and hope during that period.

Linc Energy has a huge future and we are executing our plan. The achievements to look for next year will be:

• 10,000 barrels per day of oil production
• The commencement of UCG in Wyoming
• The drilling of Umiat and the pipeline plan to bring that oil to market
• Teresa coal sale
• The drilling of oil shale in the Arckaringa Basin and the significant value-add that such a discovery will provide to Linc Energy
• Carbon dioxide injection in Wyoming and the sourcing of carbon dioxide in various locations
• Further oil and gas and coal mergers and acquisitions
• The announcement of Linc Energy’s first commercial UCG operation
• Flying a jet on Linc Energy’s Jet A1 fuel across Australia (and maybe soon across the United States)
• Further drilling in Texas, Wyoming, South Australia, Queensland, Alaska, Africa … and much more to come.

I’d like to thank my Acting Chairman and fellow Directors for their efforts this year and as always, the incredible group of people that make up the Linc Energy team. Without them, none of this is possible. And of course our shareholders … I can tell you there are days of the week that the only reason I keep fighting is for you guys! May 2012 be the year of Linc Energy.

Yours sincerely,

Peter Bond
CEO and Managing Director