Note 6 Sale Agreement between Magellan Petroleum (N.T) Pty Ltd and Santos QNT Pty Ltd and Santos Limited

On September 14, 2011, Magellan Petroleum (N.T.) Pty Ltd (“Magellan NT”), a wholly owned subsidiary MPAL, entered into a Sale Agreement (“Santos SA”), dated September 14, 2011 with the Santos QNT Pty Ltd (“Santos QNT”) and Santos Limited (“Santos Entities) (such transaction referred to herein as the “Santos Transaction”). The Santos SA is subject to the satisfaction of certain conditions by June 22, 2012. These conditions include approval of the Santos SA (and related transfers and dealings) under relevant petroleum legislation; Foreign Investment Review Board approval (which has now been obtained); execution of the GSPA (defined below); and certain third party approvals of the assignment of property interests, joint venture contracts and royalty obligations (“Conditions”).

The Santos SA provides for the transfer of the following assets with effect as of July 1, 2011 (the “Effective Date”):

• Magellan NT's 35% interest in each of the Mereenie Operating Joint Venture (Petroleum Leases 4 and 5 (“Mereenie Titles”) and associated property interests, related joint venture contracts (including a crude oil sales contract) and plant and equipment, subject to royalty obligations) and the Mereenie Pipeline Joint Venture (Pipeline License 2 and associated property interests, related joint venture contracts and plant and equipment) (collectively, “Mereenie Interests”)) to Santos QNT, giving the Santos Entities a combined 100% interest in the assets of each of the Mereenie Operating Joint Venture and the Mereenie Pipeline Joint Venture;
• The Santos Entities' combined interests of 47.977% in the Palm Valley Joint Venture (Petroleum Lease 3 and associated property interests, related joint venture contracts (including a Gas Sales Agreement, see Note 8) and plant and equipment, subject to royalty obligations) (“Palm Valley Interests”) and combined interests of 65.6635% in the Dingo Joint Venture (Retention License 2, associated joint venture contracts and plant and equipment, subject to royalty obligations) (“Dingo Interests”) to Magellan NT, giving Magellan NT a 100% interest in the assets of each of the Palm Valley Joint Venture and the Dingo Joint Venture.

The cash consideration payable for the sale of the Mereenie Interests by Magellan NT is AUD $28.0 million (plus or minus adjustments for the period from the Effective Date to the date on which the Transaction is completed (“Completion”), which will occur five business days after the Conditions have been satisfied (or as otherwise agreed between the parties). In addition, during the period from Completion until 20 years after the Effective Date, the Santos Entities will pay Magellan NT a series of contingent payments (the “Bonus Amounts”), based on meeting certain threshold volumes of net sales of petroleum from the Mereenie Titles (“Threshold Levels”) set out in the Santos SA. If over a period of 90 consecutive days the average daily net sales volumes exceed a Threshold Level, then the corresponding Bonus Amount shall be paid. Each Bonus Amount is only payable once and is payable on the first occasion the relevant Threshold Level is achieved. If all Threshold Levels are achieved the cumulative Bonus Amount shall be AUD $17.5 million.

The cash consideration payable for the sale of the Palm Valley Interests by the Santos Entities is AUD $2.9 million (plus or minus adjustments for the period from the Effective Date to Completion). The cash consideration payable for the sale of the Dingo Interests by the Santos Entities is AUD $0.1 million (plus or minus adjustments for the period from the Effective Date to Completion).

Because this transaction has not yet been finalized, our consideration of the accounting implications of this transaction is not complete as of this filing, and for this reason we are not in a position to provide an estimate of the financial effect of the transaction on the Company. The Company does not expect to report discontinued operations related to the proposed Santos Transaction.

The book value of the assets and liabilities related to the Mereenie Interests have been separated and classified as held for sale in the unaudited condensed consolidated balance sheet at September 30, 2011 as set forth below in the table below:

The assets held for sale (“AHFS”) exclude goodwill. The Company intends to allocate the relative fair value of the goodwill to the assets being sold at the completion of the sale.