Q u a r t e r ly P r o d u c t i o n r e P o r t (Quarter ended June 2008)

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HiGHliGHtS

Fifth consecutive record quarterly oil sales revenue•InterestinfiveCalifornianProjectsacquired•First californian production• from huge undrained structureSubstantial gas proven in West turkey•WestTurkeygasprojectproceedstocommerciality•large prospective acreage awarded in central turkey•two new senior staff hired •

SuMMary

Production from the Selmo oilfield is the foundation of Incremental’s activities. The decline rate of the field is very low at this stage of the field life and continuous profitable production is anticipated for many years. At current oil prices this production is giving substantial (and record) cash flows.

The West Turkey gas project has produced fabulous drilling results over the quarter, and Incremental is now proceeding to commerciality in the middle of 2009.

The two existing projects in Turkey are difficult to replicate as oil and gas acreage is tightly held in most of Turkey. To build the company, the Incremental team reviewed more than 50 potential projects in Turkey and nearby regions over the last two years. However in the final analysis, none of the projects gave a sufficiently attractive shareholder risk/return profile to lead the team to recommend investment.

With a lack of suitable projects being identified near Turkey, Incremental expanded its search into North America, where the abundance of deals is an immediate attraction. Incremental undertook a study to rank the hydrocarbon basins where low risk, onshore drilling with new technology could prove to be commercially attractive. The San Joaquin Basin in California emerged as the prime candidate.

Two stand-out projects were identified - the Kettleman Middle Dome (KMD) and the Shallow Gas project in the San Joaquin Basin, and after considerable negotiations, a purchase structure was agreed.

The KMD project is a very large field, and Incremental’s share is 10%. The KMD will continue modest production in 2008 and is expected to grow substantially each year, until eventually Incremental’s share will eclipse the production from Selmo.

The Shallow Gas project is expected to be drilled up in late 2008, and if those wells are successful, to begin producing by the end of 2009.

Incremental’s strategy to acquire low risk underdeveloped assets, then to apply its proven modern technologies to increase overall production fits perfectly with the projects identified in the San Joaquin Basin. The acreage we have secured in California offers a combination of significant discovered, but not produced hydrocarbons, and further balance of Incremental’s asset portfolio by spreading operational, project and geographical risk, with very strong profit growth potential

Quarterly Production report (for the quarter ended 30 June 2008)

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Selmo 33 - revived with over 140 barrels per day of “new oil”

The last production from Selmo 33 in December 2003 was a noncommercial 22 barrels of oil per day with 98% watercut. The well had been left idle since then. In June 2008 Incremental’s second workover rig was allocated time to investigate the possible re-commencement of production.

The reason of the high watercut was thought to be a questionable cement plug, possibly allowing communication with deeper, water bearing zones. The plug was renewed and raising 12 ft. When the well was placed on production, water production was decreased and oil production significantly increased, with stable production of about 140 barrels of ‘new’ oil daily.

As a result of the above and other activities, the daily oil production to date in July 2008 has been up to 10% higher than the average for the second quarter.

edirne GaS ProJect, WeSt turKey (iPM 55%)The 2008 drilling programme was completed in the quarter and wells successfully tested gas at commercial rates. Incremental’s drilling rig has now been de-mobilised back to the Selmo oilfield.

IPM - Quarterly Revenue ($A)

$3,000,000

$4,000,000$5,000,000$6,000,000

$7,000,000$8,000,000

$9,000,000$10,000,000$11,000,000

$12,000,000$13,000,000

$14,000,000$15,000,000

$0$1,000,000

$2,000,000

Jan-Mar07

Apr-Jun07

Jul-Sept07

Oct-Dec07

Jan-Mar08

Apr-Jun08

` `

SelMo oilField

Details of the 2008 second quarter production and production from the previous quarter are:

Solid production from all wells and rising oil prices again led to record revenue for the quarter. The second quarter revenue of $A14.0m is an increase of 20% over the previous quarter. Current $US Brent prices are higher than the average for the second quarter.

WorKoVerS

Selmo 22 - now on stream

After Selmo 22 was drilled in October 2007 with good shows, an initial swab test produced dominantly water, much to our surprise. We used an innovative method of using inflatable packers to test each 60’ interval to determine the intervals of water ingress. The sketch shows the three oil bearing intervals. A completion was then run to isolate the water bearing zone. Unfortunately the bottom packer failed, due to the tight radius of the curve and the worldwide shortage of equipment meant a replacement was not immediately available. The well has now been brought on stream from just the upper interval.

Q2 2008 Q1 2008

Net Production (BBL) 113,454 116,512

Average Daily Production (BBL) 1,247 1,295

Average Price ($US/BBL) $US 117.76 $US 89.80

1

10

100

1000

0

100

2000 2001 2002 2003 2004 2005 2006 2007 2008

BOPD

WATER

CU

T (%)

SELMO 33

MSD: 5694 ft

LSL: 5738 ft

LSD: 6300 ft

TD: 6450ft

5700’5800’

5900’6000’

6100’

1897’ 9 5/8’’ 36 ppf K-5512 ¼” Hole

5692’ 7’’ 23ppf K-55

5732’ TOC

6018’ TOC6030’ EZSV

6136’ TOC

2000’1000’

Hybrid scale

6200’6300’

6400’

5792’ LYNES PLUG

6140’ EZSV

6’’ hole

KB: 2649 ftRT: 22 ft Produced for short periods

Abandoned in 2003 due to high watercut

June 2008: Renewed the cement plug and revived

SELMO 33 Back on Production

Renewed cement plug

Last production in 2003 (Q4 average): 19 BOPD99% WATERCUT

On production in June 2008: 145 BOPD91% WATERCUT

ORTAKCI

IKIHOYUK

ARPACI 2A

KUZEY ARPACI

50 km

3D AREA

LICENCE BOUNDARY

LOCATION MAP

ARPACI 1

KOYUSTU

BATI UMUR

Q u a r t e r l y P r o d u c t i o n r e p o r t

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Well 3- ortaKci 1

20 metres of potential gas bearing net reservoir sands with excellent properties were encountered in Ortakci-1, which was drilled to a total depth of 524 metres. The sands, with an average porosity of 29%, are between 238 metres and 332 metres.

The Ortakci structure, covering approximately 3 square kilometers, is the largest of the 17 structures mapped on the 3D seismic acquired in 2007. The excellent reservoir thickness and high porosity greatly enhance the prospectivity of the western parts of the Edirne concession. Production testing was deferred due to the distance of this well from the more centrally located wells.

WellS 4 and 5 – arPaci 2 & 2a

A high pressure zone at an unexpectedly shallow depth of 169 m was intercepted in Arpaci-2 and the well had to be abandoned for safety reasons. The Arpaci-2A well was drilled 30 metres away, and encountered three major gas bearing zones before reaching a total depth of 525 metres.

teStinG ProGraMMe

iKiHoyuK 1In May 2008, Ikihoyuk 1, the first well drilled in the campaign, flowed gas at excellent rates up to 3.8 mmscf/d (million standard cubic feet per day) over the interval 444 metres to 453 metres. The logs indicate two more pay zones, which will be included at a later stage.

arPaci 1

In June 2008, several intervals between 404 metres and 468 metres in Kuzey Arpacı 1 flowed gas at rates up to 2.8 mmscf/d. Just as in Ikihoyuk 1, there are two more pay zones with multiple potential gas intervals. They will be perforated and produced at a later stage.

arPaci 1

Arpaci 1 was drilled in 2006 pre- 3D seismic. In early June 2008, Arpacı 1 flowed water over an interval between 237 metres and 241 metres, from an interval with ambiguous gas indications on the logs, confirming that seismic amplitudes from 3D seismic is a valuable tool in identifying gas bearing sands as Arpaci-1 is located outside of the strong amplitudes.

arPaci 2a

The first zone tested flowed dry gas at a rate of 2.4 mmscf/d from the interval 340-348 metres through a 36/64” choke.

Two additional pay zones with multiple potential gas intervals exist at shallower levels in the well, which will be added at a later stage.

coMMercialiSation

The 2008 campaign has successfully proven up significant volumes of gas in the West Turkey licence to proceed to commerciality. The construction of surface facilities is proceeding at a rapid pace. IPM and partners plan to bring the West Turkey Gas project into production in mid 2009.

eXPloration, turKey

central turKey conceSSionS

In May 2008, Incremental was awarded eight exploration licenses in Central Turkey. All licenses are located within the under-explored Tuz Golu basin, South of Ankara.

A number of prospects have already been identified from geological and geophysical studies. Shows of oil and gas have been noted in most of the wells, and both oil and gas have been tested in the area. The Gas Prospect, with potential for more than one trillion cubic feet of gas, has been mapped from old seismic, and has the potential for thick reservoir sands.

cross-section of the Gas Prospect

The Oil Prospect is characterised by abundant surface oil shows. Further work is required to evaluate the volume of hydrocarbon fill, but the potential is more than 500 MMBBL.

cross Section of the oil Prospect

Seepage Prospect

• 2,500 m Thick Sandstones as Reservoir Objectives• Potential for 500 MMBO Reserves • Many Oil and Gas Seeps Along Anticline

Projected existing well

500 million BBL OIL POTENTIAL

Proposed well

Prospect Proposed well

TCF GAS POTENTIAL

150 MMB OIL POTENTIAL

Seepage Prospect

• 2,500 m Thick Sandstones as Reservoir Objectives• Potential for 500 MMBO Reserves • Many Oil and Gas Seeps Along Anticline

Projected existing well

500 million BBL OIL POTENTIAL

Proposed well

Prospect Proposed well

TCF GAS POTENTIAL

150 MMB OIL POTENTIAL

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Q u a r t e r l y P r o d u c t i o n r e p o r t

Incremental currently holds 100% in each concession. A US based group will uptake a 50% interest in this project subject to certain conditions. Incremental and the new partner plan to farmout much of the ongoing work and expenditure on these prospects, and expect the ongoing seismic and well work to be completed at no significant cost to either party.

examples of surface oil shows at oil Prospect

coMMunity relationS

The microcredit project in the Selmo oilfield area continues to prosper. Some of the recent highlights are:

More than 1,000 people (150 families) are now positively • impacted by the project

Incremental have committed an additional A$50,000 to the • project, and initiated an expansion of the project to nearby urban areas.

100% loan return record.• Several participants are now eligible for their third load •

(having successfully paid back two prior loans). Average for a third loan is over A$1,000.

Additionally, a 2,000 book school library jointly funded by Incremental and the Australian Ambassador to Turkey, the Honorable Peter Doyle, is now fully functioning.

uSa ProJectS

IPM finalised the acquisition of five projects, totaling more than 19,000 acres in the prolific San Joaquin Basin in central California in May 2008. IPM is entitled to its share of production from the operating Kettleman Middle Dome oilfield from the date of acquisition.

Incremental’s first revenue share of production for the period from acquisition to the end of the quarter equates to 90 barrels. A royalty of 25% of gross proceeds applies. The oil is sold at prevailing market prices.

These revenues from the existing oil production are more than sufficient to cover Incremental’s office and overhead costs in the US. Two of the five projects are described below:

KettleMan Middle doMe Field (iPM 10%)

The KMD field is a large surface anticline (8 by 2 kilometers), which is comparable in size to many Middle Eastern oilfields. KMD has more than seven proven productive formations at depths between 1,800 feet and 13,000 feet, each one of which has produced hydrocarbons at commercial rates at some time in the past. Amazingly, the KMD has only been produced sporadically in the 1930’s and 1950’s, having been plagued by infighting by various acreage holders in the past, and lack of an export pipeline. Our partners in the US venture have solved both of these issues in the last few years. One well has produced from the 1950’s until present, keeping the lease ‘alive’, but now significant production from new wells on KMD is planned to commence in 2009. A pipeline has been built, and facilities are in the early build stage.

SHalloW ProVen GaS ProJect (iPM 50%)

In the 1950’s though to the 1970’s three wells encountered between 200 feet and 285 feet’ of gas pay, which was tested at substantial rates of between 2 and 3 million standard cubic feet per day. The wells were abandoned as the operators were looking for oil. Incremental will twin these old wells and plans to commercialise the gas reserves. Rig slots have been booked in the last quarter of 2008. Environmental surveys are currently being undertaken as a prelude to drilling. Incremental is the operator of this project.

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about increMental PetroleuM

Incremental was formed by a syndicate of petroleum industry experts in 2003 and listed on the ASX on 20 October 2005.

Its key strategy is to acquire low risk oil and gas assets and apply world class technical expertise to develop the assets and their productivity.

Incremental’s major producing asset is the Selmo oilfield in Turkey, the second largest oilfield in Turkey by cumulative production. The field has estimated oil initially in place of approximately 500 million barrels, with a low recovery factor (about 83 million barrels produced to date).

There are 47 wells at Selmo, 22 of which are still producing. The oil is sold at the field gate and sent by truck to a refinery 40km away.

There is considerable scope for improved production and recovery at Selmo – an oilfield which has a long life and provides an excellent net cash flow.

A second major asset in Turkey is the Edirne gas project in which Incremental has a 55% interest. Seven gas discoveries have been made in seven wells drilled in 2007 and 2008. The project is proceeding rapidly to commercialisation.

In May 2008 Incremental trebled its project portfolio with the acquisition of interests in five projects, totaling more than 19,000 acres in the prolific hydrocarbon region of the San Joaquin Basin in central California, USA. Two of the projects are advanced, one in oil and gas production, proceeding rapidly into a major development phase, with scope for massive increases in reserves. Another has proven gas, but undeveloped in which Incremental is operator and holds a 50% interest, and is proceeding to drill and develop.Other assets in Turkey include a major exploration project of 30,000 acres, with defined exploration targets of 1 Tcf gas, 150mmbl oil and second target area of 500mmbl oil. These are located in the Tuz Golu basin south of Ankara.

Incremental is a profitable dividend paying company with net profits of $10.8m last year, and dividends of 6 cents per share declared in the past 12 months.Incremental has offices in Perth in Western Australia and in Istanbul and Ankara in Turkey, and in California USA.

More information available on www.incrementalpetroleum.com or contact the company on +61 8 9481 8696.

PerSonnel

Several senior new personell have joined the company in the quarter:

Jim Hussey, Vice President, US Operations

Jim has a Masters in Petroleum Engineering in California, and has almost 40 years of professional experience, mostly in California. He has worked in a management and operational capacity for Occidental, Arco, Bosworth and Furguson and Bosworth Oil Companies. Jim is resident in Bakersfield, California, working from Incremental’s office in Bakersfield.

BenjaminSender,Vice President, Engineering Operations

Ben has a Bachelor of Mechanical Engineering from Melbourne University, and over eight years experience in mechanical & piping engineering working on petroleum, petrochemical, refining and mining projects for engineering companies including Bechtel and Aker Kvaerner. His clients have included Shell, BP, Santos, Reliance, BHPB and Rio Tinto. Ben is currently working on the West Turkey gas project, and is planned to then move onto the US gas project.

Financial

Firm oil prices and solid production again gave rise to an operating cash flow surplus in the quarter. Two placements totaling of 10,000,000 shares at an issue price of $1.00 per share were arranged by Tricom Equities to local and overseas institutional and sophisticated investors during the quarter.

In addition, a Share Purchase Plan allowed all Incremental shareholders to acquire shares at the same price. 1,162,000 shares were issued in the quarter pursuant to the Plan. Under the terms of the agreements to acquire the US assets, Incremental made initial payments totaling $A6.1 million to acquire the US interests.

Net cash balances at 30 June 2008 were $A9.5m and receivables were $A9.4m.

A dividend of 3 cents per share was paid on 2 July 2008.

Chris CroninChairman 24 July 2008

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Q u a r t e r l y P r o d u c t i o n r e p o r t

about increMental PetroleuM

Incremental was formed by a syndicate of petroleum industry experts in 2003 and listed on the ASX on 20 October 2005.

Its key strategy is to acquire low risk oil and gas assets and apply world class technical expertise to develop the assets and their productivity.

Incremental’s major producing asset is the Selmo oilfield in Turkey, the second largest oilfield in Turkey by cumulative production. The field has estimated oil initially in place of approximately 500 million barrels, with a low recovery factor (about 83 million barrels produced to date).

There are 47 wells at Selmo, 22 of which are still producing. The oil is sold at the field gate and sent by truck to a refinery 40km away.

There is considerable scope for improved production and recovery at Selmo – an oilfield which has a long life and provides an excellent net cash flow.

A second major asset in Turkey is the Edirne gas project in which Incremental has a 55% interest. Seven gas discoveries have been made in seven wells drilled in 2007 and 2008. The project is proceeding rapidly to commercialisation.

In May 2008 Incremental trebled its project portfolio with the acquisition of interests in five projects, totaling more than 19,000 acres in the prolific hydrocarbon region of the San Joaquin Basin in central California, USA. Two of the projects are advanced, one in oil and gas production, proceeding rapidly into a major development phase, with scope for massive increases in reserves. Another has proven gas, but undeveloped in which Incremental is operator and holds a 50% interest, and is proceeding to drill and develop.Other assets in Turkey include a major exploration project of 30,000 acres, with defined exploration targets of 1 Tcf gas, 150mmbl oil and second target area of 500mmbl oil. These are located in the Tuz Golu basin south of Ankara.

Incremental is a profitable dividend paying company with net profits of $10.8m last year, and dividends of 6 cents per share declared in the past 12 months.Incremental has offices in Perth in Western Australia and in Istanbul and Ankara in Turkey, and in California USA.

More information available on www.incrementalpetroleum.com or contact the company on +61 8 9481 8696.

LocationsofIncremental’sprojects

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Registered Office 20 Howard Street PERTH WA 6000 | Tel: +61 8 9481 8696 | Fax: +61 8 9481 2394

www.incrementalpetroleum.com

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