TRANSCRIPT OF PROCEEDINGS

National Judicial Staff ServicesSupreme CourtP O Box 7018BOROKO. NCDPAPUA NEW GUINEA

Telephone: (675) 324 5792Facsimile : (675) 325 7732

COMMISSION OF INQUIRY INTO THE NATIONAL PROVIDENT FUND

Mr Tos Barnett, ChairmanMr Donald Manoa, CommissionerLady Wilhelmina Siaguru, Commissioner

AT WAIGANI, MONDAY 16 OCTOBER 2000 AT 9.50 AM.

(Continued from 11 October 2000)

[9.50 am] THE CHAIRMAN: Yes, Mr Reeve?

MR REEVE: Thanks Chairman. Mr Chairman, if I may at the outset there is one transcript correction that I would like to make.At transcript page 2718 line 3, when we were talking about the ownership of the company Kuntili company No. 35 Ltd, thetranscript shows one of the two share holders as "Mr Kaul" and it should read "Mr Karl". And it is important that that becorrected because it has been reported in one of the newspapers with those spellings and may have of course lead people tobelieve that Mr Robert Kaul is involved.

THE CHAIRMAN: Yes and he is certainly not.

MR REEVE: Where as it is in fact not. It is Mr Karl who we believe to be Mrs Maladina's brother.

THE CHAIRMAN: All right well I regret the mistake having got through to publication at this stage but those things sometimeshappen. So yes it is Mr K­a­r­l. Thank you.

MR REEVE: Today Mr Chairman was the second date that had been fixed for my learned friend Mr Henao to call evidenceand/or to make submissions on behalf of Mr Herman Leahy on the topic borrowings. I spoke with Mr Henao last Friday and heinformed me that some information had been sought from Mr Leahy by his insurers and that that information had beensupplied but that Mr Leahy was asked to refrain from doing anything until he received further advice from his insurers. Nothingfurther has been heard to this point and Mr Henao understandably tells us that he would have nothing to say today. I haveinformed Mr Henao that though I understand his position, I intend to press ahead and close on the topic after the long awaitedlast response from the PNGBC and Finance Pacific which is to be delivered in the form of submissions only by my learnedand eminent friend Mr Griffin, QC this Thursday.

[9.53 am] Now, subsequent to that conversation I have received a letter from Mr Henao which I would seek to read into thetranscript. The letter is dated 13 October and is addressed to me. Headed, Re: Herman Leahy. "Our client's insurers haverequested for more information from him and he has provided them with that information. He was advised yesterday by theinsurers to wait for further advice. In the circumstances, our client has instructed us to advise you that he is reluctant toprovide further assistance to the inquiry at this stage." So, that is Mr Henao's response which is on the record to complete thataspect.

THE CHAIRMAN: Thank you. Do you know whether the insurers have been informed of the commission's offer to take theevidence in camera.

MR REEVE: I do not know specifically but I assume that that would have been conveyed to them. It was quite clear to MrHenao.

THE CHAIRMAN: Yes, thank you.

MR REEVE: The second matter I would like to deal with shortly this morning relates to Highlands Gold and Highlands Pacific.On this topic, the opening was delivered on 22 September, 1999. All affected parties were notified on 23 September, 1999 andthe­ ­ ­

THE CHAIRMAN: Do you mean 1999?

MR REEVE: 2000 I am sorry. And the opening was supplemented on 4 October in a question and answer format and all of MrKaul, Mr Fabila and Mr Mitchell were heard on that day. Mr Andersen of Gadens Lawyers has informed me that HighlandsPacific Limited does not wish to be heard. Mr Lightfoot of Pacific Legal Group has informed me that Carter Newell Lawyers donot wish to be heard. Mr Peter Lowing of Tress Cocks and Maddox Solicitors in Sydney has written to me on behalf of MrIsikeli Taureka and Mr Gerea Aopi and if I may I would seek to read onto the record what Mr Lowing says.Mr Lowing wrote on 13 October 2000, a letter which was addressed to myself, headed, Isikeli Taureka and Gerea Aopi andsays this: "I refer to previous correspondence and attach a draft statutory declaration of Gerea Aopi which will be sworn anddelivered to your office on Monday 16 October, 2000. I would ask that this executed document be tendered before thecommission. This matter is subject to litigation and for that reason my client Mr Aopi is not prepared to give evidence relatingthereto. Mr Taureka will not be giving evidence in respect of his involvement with the HPL saga.

[9.55 am] Mr Taureka did not agree with the investment and this has been adequately canvassed by the evidence so far. Forthe sake of completeness, Mr Taureka instructs the writer that the discussion with Mr Wright on or around 17 January 1997merely confirmed his position. The note attached to the board paper presumably made by Mr Wright is accurate if it is meantto convey the view expressed by Mr Wright that Mr Taureka's opinion would not change the outcome or the vote of the board.It did not."

The statutory declaration of Mr Aopi, we have not received the sworn original yet, but I am sure we will reads as follows: "IGerea Aopi of P O Box 333, Port Moresby, Papua New Guinea, company director, do solemnly and sincerely declare:

(1) I refer to the report to the Commission of Inquiry into the National Provident Fund of Papua New Guinea (the NPF) of anddealing with the issue of the share portfolio specifically dealing with the investment of the NPF in Highlands Pacific Limited(HPL) forwarded to my lawyers, Tress Cocks and Maddox (the Report).

(2) I have read the report and make the following comments, observations and explanation thereto.

(a) I was appointed the director of HPL in or about March 1997.

(b) I was approached to join the board of HPL by representatives of the institutions that were involved in the proposedunderwriting of the IPO of HPL. These institutions gave me to understand that they would support my nomination to the boardof HPL. My position at the NPF was not a determining factor in this process.

(c) At all times I was and considered myself a director of HPL independent from my position at the NPF.

(d) I held a number of independent directorships at the time of my appointment to the board of NPF.

(3) I have recently received a letter from the lawyers of the NPF saying that they have been instructed to issueproceedings against me for recovery of the board fees paid to me by HPL.

[9.57 am] I have instructed my legal counsel to reply to this correspondence advising the NPF that I would vigorously defendany such claim." That is the end of that declaration.

I have not heard from any other party during the intervening time and I in consequence propose to close this subject either onFriday or next Monday if I have not heard from any other person before that time.

The last business that we have for the commission today, Mr Chairman, relates to the opening on the topic Cue EnergyResources NL, which was of course an equity investment of the National Provident Fund.

What I intend to do is to read a brief statement in relation to the opening and then to if I may adopt the format of handing upthe full opening and asking for a direction that it be incorporated in the transcript.

THE CHAIRMAN: Yes.

MR REEVE: This opening will, due to technical reasons, be in two parts. The first will be delivered today and the second laterthis week. This opening chronicles the buy in and sell down by the NPF board of trustees of shares and options in the capitalof Cue Energy Resources NL, a speculative minor oil and gas exploration company which was listed on both the New Zealandand Australian stock exchanges.

Though there are some deficiencies in NPF's records, it seems: (a) the investment between 1995 and 1998 cost NPF a totalof AUD$11,751,750; (b) the sell down yielded NPF, a total of AUD$4,360,781; (c) the realised loss was in consequenceAUD$7,390,969 or over 62.8 per cent of funds invested. The figures are again given in Australian dollars as the shares weredenominated, bought and sold in Australian dollars. Again borrowed funds were usedand there were interest charges which increased the loss and there would of course have been currency fluctuations properlybrought to book as exchange losses or gains.

The opening is voluminous and comprehensive and is a credit to Mr Richard Kuna of KPMG who conducted under supervisionthe detailed investigation on which the opening is based. This we are pleased to say will be the last opening of suchmagnitude in respect of NPF's loss investments in resource sector shares.

Whilst there will be a further opening on NPF's ventures with Oil Search, Niugini Mining, Macmin and Orogen, that will not beof opus magnum proportions.

[10:00 am] The opening shows how from an initial investment of 15 million shares subscribed for in Cue Energy Resources ata cost of AUD$3 million in 1995, used in the acquisition by Cue of a 7 per cent interest in the South East Gobe Field, NPF withMr Robert Kaul as its representative director on the Cue board and later Mr David Copland as an apparently independentdirector on the Cue board, even though Mr Copland was simultaneously the board chairman and a trustee of NPF became acommitted financier of and equity participant in Cue's strategy to grow by acquisition on a very thin capital basesupplemented by regularly calling for more money through share placements. The course embarked on saw NPF striving tomaintain 20 per cent equity in Cue and in that endeavour: (a) itself loaning Cue AUD$1 million to fund Cue's cash shortage;(b) itself pledging K32 million in fund IBDs to secure a K1 million loan to Cue from the Bank of South Pacific Ltd; (c) NPFcommitting itself to contributing shares and convertible notes up to AUD$25 million to help fund Cue's bid to acquire the oiland gas assets of Mt Isa Mines held by Barracuda PNG Ltd. This bid failed and the commitment was thus not called up; (d)NPF spending AUD$1.6 million for shares to help fund Cue's buy in to the Tanjung Jabung block in Indonesia; (e) NPFspending AUD$5 million for shares to fund Cue's abortive attempt to purchase the assets of Saga Petroleum ASA, adisastrous adventure in Indonesia which resulted in protracted litigation; and (f) NPF spending AUD$1.2 million for shares tofund NPF's proportionate share of Cue's short fall in equity capital needed to fund its ongoing commitments.

The opening will look at the affairs of Cue Energy Resources as they should have been seen through the eyes of Mr Kaulinitially and later with Mr Copland with him and how almost lemming like NPF became locked into Cue and linked this part ofits destiny with Cue remaining a loyal consistent supporter whilst those who were more astute sold out. How Cue used NPF'sshareholding and its enthusiasm and sought to use Minister Haiveta's support to bolster its own position is quite clear in lettersboth were asked to write in support of Cue's acquisition efforts to assure those with whom Cue wasnegotiating of NPF's total support.

The opening catalogues in detail the inadequacies and short falls which have now become so familiar. Inadequate or no duediligence, inadequate or no independent evaluation or advice, lack of critical analysis and risk assessments. Lack of adequateinformation at the board of trustees, lack of full disclosure of material matters by management and the chairman to the boardof trustees, management acting without proper board of trustees authority or in excess of authority given, briefs to the board oftrustees which regurgitate sales pitches put by vested interests. Lack of appropriate diligence andquestioning by the board of trustees. Inattention by management and the board of trustees to prescribed investmentguidelines and portfolio balance and profile.

[10.04 am] Board ratification of acts done without prior approval without question or criticism. The NPF nominee director ofCue voting on major matters without consultation with the NPF Board. Inadequate briefs from NPF to the responsible ministerseeking section 61 approvals. Where they were sought and given, Department of Finance briefs which, with one notableexception regurgitate the NPF briefs. Lack of critical evaluation and analysis on the few occasions and with one notableexception when the department was asked for advice. Ministerial approvals under section 61 being given withoutdepartmental advice or input. Untenable and undisclosed interests which created conflict of interest situations. Failure incases to obtain ministerial approval where required.

Yet again we see the stock market downturn in late 1997 impact adversely on Cue forcing it to relent on the Saga acquisitionand despite the known and critical problems with Cue, NPF buying more shares apparently without any board approval inDecember 1997 and early 1998.

The purchases of 1.9 million shares on 30 and 31 December 1997 bid the shares up by 1.1 cents from 13.27 cents to 14.37cents and there must be real concern that the motive was to close the year at an inflated price which bolstered the value ofthis shareholding in the year end financial statements and in consequence contributed to the year's profit for the purpose ofcalculating management bonuses. To make this point clear 1.1 cents per share does not sound much. But, when you have54,745,631 shares as NPF did a price rise of 1.1 cents a share means an increase in value of that portfolio of AUD$602,220and that makes a lot of difference.

[10.09 am] The further purchase of shares even at the lower prices of 9.5 cents and 10.5 cents in early 1998 cannot in ourview be explained on rational grounds. We consider these unauthorised purchases carry clear personal liability for those whoauthorised them.

In the opening the impossible position of Mr David Copland as the chairman and a trustee of the NPF Board of Trustees and asupposedly independent director and share option holder of Cue is clearly demonstrated and the resultant conflicts that aroseare seen. Mr Copland's failure to disclose his interests to the NPF Board his acting in conflict situations, the untenability of hisso called independent status and his being used by Cue in his position with NPF are clearly shown. We leave it to thecommission to find its own adjectives to describe Mr Copland's conduct, particularly in light of his recorded calls fortransparency and accountability at a Cue Board meeting.

Similarly Mr Robert Kaul even though he was NPF's representative director on the board of Cue Energy failed in our view in anumber of respects to adequately discharge his duties to the NPF Board and compromised his position by holding shares inCue which he did not disclose to the NPF Board. Again, adjectives will need to be found probably similarly uncomplimentary tothose found for Mr Copland.

With the NPF in financial crisis in early 1999 and the formulation and implementation of the resultant debt reduction strategy,these shares were sold down at a substantial loss bringing the Cue folly to an end. We say folly for it must be rememberedthat NPF is a provident fund which already had massive exposure to speculative resource shares.

[10.12 am] That sell down however was not without its dramas as shall be seen when we get to the second part of thisopening. We will seek to tender all tendered documents referred to in both parts of this opening when the second part isdelivered. If I may, Mr Chairman, I would seek to hand up the first part of this opening and ask for a direction that it beincorporated in the transcript and a disk will be made available to the transcription service to assist in that.

THE CHAIRMAN: Yes.

Introduction

The National Provident Fund of Papua New Guinea's ("NPF") investment in Cue Energy Resources NL (Cue) is characteristicof NPF's investment strategyas formulated in 1994/1995. This investment strategy has been described in previous Commission Hearings; NPF in anattempt to diversify its portfolioadopted an investment policy that saw a shift from a passive investment approach to a more aggressive and consequentlyhigher risk approach.

The approach saw NPF invest in large holdings in PNG resource stocks. The funding for the investment programme was aswe have also heard inearlier Commission Hearings primarily by way of borrowed funds obtained from the ANZ.

As we will also describe, NPF in the period November 1995 to October 1999 was a significant shareholder in Cue, holdingbetween 16 – 20% of theCompany's issued share capital. In October 1999 consistent with a debt reduction strategy and equity restructure programme,NPF sold its investmentin Cue resulting in an approximate net loss to the Fund of A$7.4 million.

The investment by NPF in Cue was primarily by way of participation in a number of private placements issued by Cuebetween October 1995 andNovember 1997.

This opening will chronicle NPF's investment in Cue and will explain the sequence of events that led to NPF suffering netinvestment loss in Cue of

A$7.4 million (K4.65 million).

For each investment transaction this opening considers the following aspects of NPF's investments in Cue.

Was appropriate due diligence / investment appraisal exercise performed in respect of the entry into the investment?Which members of the management team were involved in the due diligence?What professional advice if any was sought in respect of any proposed investment or sale?Was adequate disclosure of the professional advice and due diligence made to the Trustees?When did the Board approve the transaction?Did NPF obtain Ministerial approval for investment transactions as required under the Public Finance (Management) Act?Did the Commercial Investment Division (CID) of the Department of Finance (DoF) perform an assessment of theinvestment proposalWas there any indication of conflict of interest? Did the trustees properly discharge their responsibilities? Any evidence of lack of "good faith"Any other issues of note

Background

Information contained in this section will be relevant in the understanding of this opening.

In particular this section describe the activities and other background information pertinent to Cue, as well as a brief summaryof the delegation limits

imposed upon management during the period under review.

Cue Energy Resources NL

According to the 1995 Prospectus of Cue (Commission Document 327), the Company was incorporated in New Zealand inJune 1981 and shortlyobtained a listing on the New Zealand Stock Exchange later in that year. By way of background, section 5.1 of the 1995 CueProspectus, to be tenderedas Document CU3 to CU4, details the company history as follows:­

"The Company was incorporated in Wellington, New Zealand, on 29 June 1981 as a 'No Liability' company. The followingmonth it issued a Prospectusto raise $4.5 million and was listed on the New Zealand Stock Exchange in September 1981.

The Company's initial petroleum interests were in the offshore Taranaki and onshore Canterbury Basins in New Zealand witha 5% limited carried

interest in T/14P in the Bass Basin of Australia; the forerunner of the T/RL1 Yolla Retention Lease. The Yolla prospect wasdetailed in the Company'sprospectus as the main lead in T/14P.

Between 1983 and 1985 Cue Energy participated in the drilling of a number of offshore wells in New Zealand, principally in theTaranaki Basin,including the sub­commercial Moki 1 oil discovery. In 1985/86, Cue Energy participated in the discovery well, Yolla 1 and inthe drilling of Tilana 1in T/14P where approximately $50 million was spent on drilling and extensive testing of these wells.

Cue Energy was a sponsor and an initial shareholder of Southern Petroleum which was formed to explore in the Great SouthBasin, south of the SouthIsland of New Zealand. Southern Petroleum was unsuccessful in the Great South Basin, but was subsequently successful inthe onshore TaranakiBasin where it participated in gas discoveries at Tariki (1986) and Ahuroa (1987) and oil discoveries at Waihapa (1988), all ofwhich have beensubsequently developed.

Following a beneficial merger of Southern Petroleum with Payzone Exploration Limited, a company affiliated with BrierlyInvestments Limited andholding similar interests to Southern Petroleum, control of Southern Petroleum passed to Brierly Investments Limited and CueEnergy's remainingshareholding in Southern Petroleum was sold by 1989.

In 1988 in order to rationalize its diverse activities, the Company sponsored the development of Octanex and transferred itsremaining direct oil andgas interest, a 2.79% interest in T/14P to Galveston in return for an issue of shares by Octanex. These Octanex shares weresubsequently distributedas a dividend to Cue Energy's shareholders. During the period 1988 to 1991 Cue Energy pursued resource investments andgold exploration activities.

In 1992 the Company made the decision to redirect activities to oil exploration and acquired from Octanex and Bass StraitGroup the whole of theissued capital of Galveston, which had by then increased its interest to 14% interest in the Yolla Retention Lease T/RL1, whichcovered the Yolla GasField.

During 1993 Cue Energy further refined its direction by developing a strategy to achieve growth through the acquisition of oiland gas producing interests.In early 1994 Mr Frank Jacobs was appointed Managing Director and was asked to build a professional team to achieve theCompany's objectives.

In mid 1994 the Company acquired PL Mining Pty Ltd and its subsidiary Barcoo Exploration Inc from the National Mutual LifeAssociation of Australasiain exchange for shares in Cue Energy. As a result National Mutual became a substantial shareholder."

Further background on Cue is also provided by a publication issued by Wilson HTM entitled "The Resource Weekly". In theweek ending 20 October 1995,publication, an extract of this publication found in NPF's records stated the following in respect of Cue.

"CUE ENERGY – A NEW PLAYER IN PNG & AUSTRALIAN OIL

Public Offering at 20 cents ­

Cue Energy is a small oil exploration company, which is undertaking an aggressive growth phase through acquisition. Cue'scurrent marketcapitalisation is $10 million and it is now raising up to $10 million, mainly to fund the acquisition of an interest in proven oilreserves in Papua NewGuinea. For every two shares, there will be one free 25 cent June 1998 option attached.

Up until now, Cue has been a New Zealand listed company and it is planned to be listed in Australia following the fund raising.The company'smanagement and strategy changed in early 1994. Prior to then it was a pure exploration company, but in 1994, the emphasischanged to acquisition ofproducing petroleum assets. As part of this change, Mr Jacobs was appointed as managing director. Mr Jacobs has animpressive background, having18 years experience in the industry and overseen major growth in previous positions at Peko Oil and Cultus Petroleum.

Following this change, Cue initiated several moves to acquire oil and gas assets at attractive prices. Cue's first move underthis new strategy has beento negotiate the acquisition of CMS NOMECO PNG Oil Co. They key asset of CMS is a 7 per cent interest in PetroleumProspecting License 56in PNG. The acquisition cost of this is A$5.6 million. PPL 56 contains approximately half of the South East Gobe oil field inPNG. Proven and probablereserves in this field so far are 55 million barrels, with up to 85 million barrels in the proven, probable and possible categories.

Cue's share of the proven and probable reserves is estimated at 1.9 million barrels. The SE Gobe field will be jointlydeveloped with the nearby GobeMain field. Development approval is expected next year, with first oil production from the second half of 1997. This should giveCue an equity oilproduction of around 300,000 barrels per year from then.

The immediate upside for Cue lies in the significant and as yet mostly untested exploration potential in PPL 56. At least 8undrilled structures arerecognised in PPL 56, and the first of these will be tested by the Beaver­1 well planned for late 1995. Recently, Oil Search'sMakas well which is alongtrend from PPL 56 showed encouraging potentially commercial zones.

In addition, Cue has a 14 per cent interest in the as yet undeveloped Yolla gas/condensate field which is located 130 kmoffshore in the Bass basin,midway between Victoria and Tasmania. This has proven and probable reserves of 263 PJ of sales gas. An appraisal well isplanned for late 1995 orearly 1996. Cue is fostering a market for Yolla gas and has formed an alliance with gas turbine manufacture ABB to promoteopportunities based ongas fired electricity generation.

Overall, Cue Energy is well positioned as a growth oil and gas company. Its emphasis will be on negotiated acquisition ofgoods assets, rather thangrass roots exploration. However, with the PPL 56 acquisition, it has now secured a 7 per cent interest in one of the mostexciting oil explorationprovinces in our region. The public offer for Cue Energy opens on Monday 23 October and will close on 15 November 1995 orearlier. Contact WilsonHTM for prospectus".

A copy of the extract found in Commission Document 124B will be tendered as Document CU5.

According to the prospectus and the Wilson HTM "Resources Weekly" Cue's main assets at the time of initial entry intoinvestment by NPF can besummarised as follows;

a 14% interest in the Yolla Gas Field in the Bass Strait. Commercial development of the Yolla Gas field was dependent onproven sales gasreserves being attained.a 40% interest and operation of exploration permit 7/28 P in the Bass Basin located offshore Tasmania, Australia. Thepermit area was lightlyexplored relative to other nearby areas and it had no proven discoveries as yet at that time.a 12.5% interest in the Exploration Permit EP 363 situated in Western Australia. No potential findings were established inthis exploration permitas yet at that time.Clearly at the time that NPF first invested in Cue, the company had no substantive commercially proven exploration interestsor income producing assets.The acquisition of the interest in PPL56 was therefore critical to the company's ongoing strategy of growth through acquisition.(Commission Document 327 /to be tendered Document CU6­15.

Summary of NPF's investment in Cue in the period 1995 ­ 1999

Source :­ NPF accounting records / Wilson HTM records (Commission Documents 702, 552).

Delegations

In this opening there will be constant referral to the NPF Trustees and management financial delegation limits. TheCommission will recall how we havereferred to these in earlier hearings, but at this point it is relevant to restate briefly what these delegations were as reflected bythe minuted records.

In the Managing Directors report for June 1993 which is found in Commission Document 370, Mr Kaul provided the followingregarding financialdelegation:

"It is apparent that there exists no financial delegation authority for management members. This delegation would beimportant in order to limitand control management use of finances of the Fund. It is recommended that the Board approved the attached schedulesetting out the financialdelegation levels.

This report has been tendered as Document H3.

On 30 July 1993 at the 83rd Board Meeting (Commission Document 47) minutes record that the Board resolved to acceptthe Managing Directorsrecommendation. These limits applied up until 8 February 1999.

At the 117th Board meeting minutes held on 8 February 1999, which can be found in Commission Document 51 and will betendered as documentCU16, the Trustees resolved:

"…to delegate an amount of K50,000 to the Managing Director and the Corporate Secretary respectively. Any amounts inexcess of K50,000 must beapproved by the Chairman and signed for by at least one other Trustee. No other members of management were delegatedany financial powers".

On 8 March 1999 a Special Board Meeting was held where the minutes record:

" The Managing Director was asked to comment on his request to increase the limit on his financial delegation from thepreviously resolved K50,000limit to K350,000.

It was resolved to increase the limit on the Managing Director's financial delegation from K50,000 to K100,000. It was furtherresolved that theManaging Director use his discretion to utilise his powers under section 18A (Delegation by the Managing Director) of the NPFAct to delegateto his subordinates any or all his powers and functions relating to this financial delegation."

A copy of the minutes for this meeting can be found in Commission Document 51 and will be tendered as Document CU17.

It should also be noted that under the NPF Act, the Chairman of the Board has no power to act on behalf of the Board unlessthe Board delegatesthat power to him in the proper forum.

NPF's initial investment in Cue­ November 1995

According to NPF's accounting records (Commission Document 594) NPF's initial investment in Cue was 15 million ordinaryshares at 20 centsper share (Australian) representing a total cost of A$3 million in November 1995.

The acquisition of these shares by NPF was through a Prospectus issued by Cue dated 20 October 1995 (CommissionDocument 327).

A review of the prospectus provides the potential investor with a useful insight into Cue, its business and the associated risksof investment.

Reviewing the prospectus we note that the prospectus sought to raise A$10 million by the issue of 50 million ordinary fullypaid shares at an issueprice of 20 cents (or 20 toea payable in PNG). In addition for every two shares allotted one free transferable option to acquirean ordinary shareexercisable at 25 cents would be granted. The option was exercisable on or before 30 June 1998.

Page 5 section 2.2 of the Prospectus states the purpose of the issue as follows:­

"The purpose of the Issue is to provide additional working capital to enable Cue Energy to:

· Fund the acquisition of CMS Nomeco PNG Oil Co (CMS PNG) and contribute to Cue Energy's share of upcoming costs inPPL 56;· Contribute to Cue Energy's share of the appraisal drilling of Yolla Field;· Undertake a staged study of the Bass Strait permit T/28P and investigate farmout opportunities;· Provide working capital to pursue acquisition opportunities."Also on page 5, to be tendered as document CU6C, we find a summary table explaining the way in which the funds would beapplied.

"Subject to this Issue Cue Energy will have the following funds:

Note 1 – This figure assumes that applications for shares are received for 50

million shares. If the $8 million underwritten amount only is raised the Directors

will consider alternative arrangements with respect to the funding of Cue Energy's

share of the appraisal drilling of Yolla 2"

At the close of the placement Cue raised A$8 million of the planned A$10 million. (Commission Document 124A). As will bedescribed thisshortfall had a significant impact on the working capital of the company, which resulted in the company needing to seek short­term overdraftfacilities shortly after the share issue. (Commission Document124B).

Following this capital raising exercise Cue successfully acquired the 7% interest in PPL56, which contains part of the SouthEast Gobe and theBarikewa and Iebi gas discoveries. (Commission Document 124A and 327).

Investment Appraisal and Board Approval

On the basis of information available to the Commission, the initial discussion of investment in Cue was first recorded in theminutes of the 96th NPFBoard meeting held on 29 August 1995.

A review of the NPF Board minutes (Commission Document 47) indicates that the NPF Board at the 96th Board meetingapproved an investment inCue. The Board Papers (Commission Document 128) for this meeting included no brief for the trustees.

The Board minutes (Commission Document 47), to be tendered as document CU18 state the following:­

"Frank Jacobs, Managing Director of Cue Energy Resources and Ben Simoss (sic) of Wills (sic) and HTM Limited Stock andShareBrokers did a presentation on the Company and its wish to secure equity funding for the purchase of a 7% interest in thePetroleum ProspectingLicense (PPL) No 56. It was resolved to approve the purchase of up to K1 million in shares in the Company subject to thefollowing;

(i) NPF being permitted a seat on the Board of Directors of the Company; and(ii) Ministerial approval under Section 60 of the Public Finance's Act"

The next time we find the NPF Board of Trustees consider the investment in Cue is in a circular resolution dated 6 October1995 signed by both MrWright and Mr Kaul. The circular stated that subsequent to the 29 August 1995 Board resolution to purchase K1 million worthof shares, they hadbeen approached by the Chairman and Managing Director of Cue to establish if the NPF would be interested in underwriteA$3 million of a plannedshare issue.

The Management Paper 16/95 signed under the names of Mr Kaul and Mr Wright recommended to the Trustees that NPFshould underwrite A$2 millionand which would earn a fee of A$60,000. The paper informed the Trustees that the maximum additional exposure to NPFwould be A$400,000 asPOSFB and PNGDFRBF had shown firm interest in subscribing to A$300,000 shares each.

A copy of the circular taken from Commission Document 129 will be tendered as Document CU19 to CU20.

With regard to this circular resolution / management paper we have located Trustee Copland's response which will(Commission Document 333),be tendered as document CU21. This stated the following:­

"Based on feed back from Credit Corporation plus the press release by Cue Energy resources received on 10th October Iwould not be averse tounderwriting the A$3 million for a fee of A$90,000. Even if it all had to be taken up it would not be over the top for a singleinvestment in oil/mining.

As an aside perhaps we should be considering lifting our exposure in Highlands Gold at the next meeting)."

In other words it would seem that Trustee Copland was comfortable with the underwriting of this share placement because ifNPF had to subscribefor the complete PNG allocation of 15 million shares at a price of A$3 million at a fee of A$90,000. Responses from the othertrustees have not beenlocated.

On 13 October 1995, Mr Jacobs of Cue informed Mr Kaul through a fax that the underwriting agreement with Wilson HTM hadbeen signed and thatMr David Cleary of Wilson HTM and himself would be in Port Moresby on 23, 24 and 25 October 1995 to promote theprospectus with PNG investors.In the same letter Mr Jacobs requested confirmation of the extent of NPF's underwriting and the person to be nominated torepresent PNG investorson Cue's Board. A copy of the fax with the letter can be found in Commission Document 124A and will be tendered asDocument CU22 to CU23.

On 24 October 1995 Mr Cleary sent a fax to Mr Kaul and Mr Wright enclosing a letter setting out the formal details of Wilson'ssub­underwriting

arrangements with the NPF concerning an issue of shares by Cue. The letter can be found in Commission Document 124Aand will be tenderedas Document CU24­CU28

Examining tendered Document CU24­28 we note that the details of the sub­underwriting agreement were as follows:­ ­ Cue Energy was to raise up to A$10 million by offering 50 million shares at 20 cents per share

­ NPF sub­underwrite 15 million shares which would be issued at A$3 million.

­ The sub­underwriting fee of 3.5% (A$105,000) would be payable to NPF

­ Wilson HTM Corporate Services Limited ("underwriter") had entered into an underwriting agreement to underwrite 40 millionshares (A$8 million)for an underwriting commission of 4% together with an Issue Management and Due Diligence fee of A$100,000.

­ Wilson's letter stated the following disclaimer

"Wilson HTM Corporate Services Ltd does not make any recommendation as to whether you should participate in this offer asconcerning the issue orCue itself. You should make your own decision whether to participate based upon your own enquiries and the informationpresented in the prospecting".

The NPF management report located in the Board Papers for the 97th NPF Board of Trustees meeting held on 26 October1995, (Commission Document129) states that Mr Kaul sought clarification from the Trustees in respect of the Board paper circulated to the Trustees on 6October 1995. The full extractof Mr. Kaul's brief in the management report (Commission document 129 to be tendered as Document CU29 is as follows:

"On the 6th October, a Board paper [copy attached] was circulated to all Trustees for their approval for the Fund to underwriteA$3.00 million in CueEnergy Resources for an underwriting fee of 3%. To the date of writing this report, only two responses have been received..

Could the Board please make their position known on this matter.

In addition, Cue Resource Management has requested us to confirm the person to represent PNG on the Board..

In accordance to Resolution No. 41 of the meeting No. 78 of the Board of Trustees on 1st March 1993, the Board is requestedto confirm my appointmentto the Board of Cue Resources NL".

It should be noted that although the Board Paper specified that the underwriting fee was 3% this would be superceded by thetime of the Board Meetingbecause the underwriting fee according to a letter of arrangement sent by Wilson's was 3.5% (Commission Document 124Ato be tendered asDocument CU24­28.

According to the minute record of events of the 97th Meeting of the NPF Board of Trustees, (Commission Document 47) theTrustee's approved theunderwriting of 15 million shares for a cost of A$3 million.

"6.4 Cue Energy Resources N.L

The meeting was informed that Cue Energy is to raise up to A$10 million by offering to the public 50 million ordinary shares(the "New Share") at 20cents per share. For each 2 shares allotted, the allotee will be granted 1 free option exercisable at 25 cents per share on orbefore June 1998. NPFwas being offered sub­underwriting of 15 million shares (A$3 million) for a fee of 3.5% of the dollar amount of the New Sharessub­underwrites by NPF (A$105,000).It was resolved to approve the underwriting arrangement subject to the approval of the Minister for Finance first had andobtained".

It would appear that NPF did not place A$600,000 of the exposure with POSFB and PNGDFRBF as contemplated by Mr Kauland Wright's circular to theTrustees as NPF took up the A$3 million. (Commission Document 124A)

The relevant extract of the 97th meeting minutes taken from Commission Document 47 will be tendered as documentCU30.

On 1 November 1995, Mr Kaul informed Mr Jacobs of the NPF Board's decision to underwrite A$3 million worth of stock andhis nomination as a director ofCue Energy. A copy of Mr Kaul's fax taken from Commission Document 124A will be tendered as Document CU31

Mr Jacobs' responded by fax dated 9 November 1995, which stated:

"At yesterday's Board meeting the Directors of Cue Energy accepted your nomination as the PNG representative on CueEnergy's Board.

An invitation to join the next scheduled regular Board meeting in December will be made to you upon successfully completingthe Issue next week.

Congratulations, we look forward to building the Company with your assistance."

A copy of the letter taken from Commission Document 124A will be tendered as Document CU32

On 17 November 1995 NPF raised a cheque of K2.9 million in favour of Cue Energy and the difference of K100,000 was paidon 29 November 1995. Thecheque requisitions for these payments taken from Commission Document 594 and 595 respectively will be tendered asDocument CU33 to CU38

NPF participate in the underwriting of the share placement

On 21 November 1995, Mr Jacobs faxed a letter to NPF together with a supplementary prospectus and a press release. Thesupplementary prospectusstated that a decision had been made to make a free grant of 30 June 1998 options to all shareholders on a 1 for 2 basisexercisable at 25 cents pershare. A copy of this fax found in Commission Document 124A will be tendered as Document CU39 to CU44.

On 24 November 1995 a joint press release by Cue and Wilson HTM as underwriters was issued advising that thecommitment for the minimum subscriptionof A$8 million had been received and that the issue closed on that date. A copy of the release found in CommissionDocument 124A will be tenderedas Document CU45 to CU46

On 7 December 1995 Cue issued a press release to the shareholders advising that Cue had completed the purchase of CMSNomeco PNG Oil Co and as aresult CMS Nomeco PNG Oil Co had became a wholly owned subsidiary of Cue. The release further stated that CMS NomecoPNG Oil Co would be

renamed Cue PNG Oil Co Limited and that Cue had been granted a listing on the Australian Stock Exchange ("ASX").

The press release further stated that as at the date of listing on the ASX Cue's issued shares and outstanding optionsconsisted of the following:­

91,131,328 ordinary shares of no par value;20,069,995 30 June 1998 option;1,781,250 employee incentive plan options.A copy of the release found in Commission Document 124A will be tendered as document CU47.

We note from the Cue Board minutes that Mr Kaul attended the 20 December 1995 Cue Board meeting. A copy of the minutesof this meeting is found inCommission Document 124B will be tendered as document C48 to CU50.

NPF's Due Diligence / Investment appraisal

As we have noted in previous Commission Hearings the Board minutes of Board of Trustees meeting provide limited insightinto the decision makingprocess at Board level and we again note that this was the case with regard to NPF's investment appraisal and decisionmaking process concerning Cue.

Examination of Cue's 1995 prospectus (Commission Document 327) in respect of the share placement of 50 million sharesreveals an extensive list ofrisks associated with Cue (pages 32 to 36 of the prospectus). We have not located any minuted record that would indicatethese risks were discussedand/or considered by the Board. These risks were also not brought to the Trustees attention in the Management Paper 16/95circulated to the Board byMr. Kaul and Mr. Wright.

"Share market Fluctuations

Share market fluctuations in Australia, New Zealand and other stock markets may impact on the value of the Shares and theOptions. Factors whichmight influence share markets include the general economic outlook, fluctuations in the world market price of oil and gas,exchange rate movements,interest rates and inflation.

Exploration and Production Risks

The successful exploration, development and exploitation of oil and gas fields is subject to a number of risks including:

Exploration – the risk that exploration will be unsuccessful when a geological prognosis is proved to be incorrect.

Cost and timing – the risk that exploration, appraisal, development, plant and/or operating costs prove to be greater thanexpected or that the proposedtiming of exploration, development or production may not be achieved.

Reserves – the risk that the calculation of reserves is proved incorrect by future production, mapping and/or drilling.

Production – the risk of well, plant or pipeline failure.

In addition, oil and gas exploration and production activities in Papua New Guinea and the SE Gobe development are subjectto special risks.

Environment Considerations

Oil and gas exploration and production can be an environmentally hazardous activity giving rise to substantial costs forenvironmental rehabilitation,damage control and losses.

Insurance

Insurance against all risks associated with oil and gas exploration and production is not always available and the cost can behigh. Cue Energy hasinsurance in place which it considers appropriate to its needs.

Native Title

The impact of the decision of the High Court of Australia in June 1992 (the Mabo decision), which recognised traditional nativerights to land in certain circumstances,may pose a risk to certain of Cue Energy's assets. This is discussed more fully in the legal report on title by Arthur Robinson &Hedderwicks.

Government Actions

The impact of actions by governments may affect Cue Energy's operations, including such matters as land access,compliance with environmentalregulations, taxation and royalties.

CMS PNG

Cue Energy has carefully analysed its investment in CMS PNG. Whilst it believes that it has had access to all relevant datarelating to CMS PNG'sactivities, there is a risk that material information of which it is unaware has not been taken into account. The vendor hashowever, provided certainwarranties relating to CMS PNG and its activities, details of which are set out in the CMS PNG Sale & Purchase Agreementsummarised in Section 9.4of this Prospectus. The value of these warranties is dependent on the vendor accepting the obligation and on the ability of thevendor to meet itsobligations at the time that any warranty claim is made.

Oil Price

Condensate sales and the sale of oil will have the risk of fluctuations in the international oil price. The sale of gas will dependon available markets atacceptable prices and transmission costs.

Exchange Risk

Cue Energy's ongoing exploration and development costs and future revenue associated with PPL 56 will be mainlydenominated in US$. AccordinglyCue Energy's costs and revenue could be affected by changes in the A$ against the US$.

PNG Risks

PNG is considered as a country of high political risk. In February 1995, for example, the Export Finance InsuranceCorporation of the Commonwealthof Australia downgraded PNG to the "D" political risk category. This is the category of the highest political risk. Approximatelyhalf of the countriesgraded fall into this category.

The directors have considered the issue of political and other risks in PNG and will continue to do so as a matter of normalbusiness practice. In thisregard, the directors have formed the view that CMS PNG's interest in PPL 56 benefits from the existing petroleumdevelopment in the Kutubu area andthe significant foreign capital investment already made in the area.

Government Action

The PNG Government announced in 1995 that landowners in PNG would be entitled to 2% free equity in any futuredevelopment projects. It is theDirectors' opinion that this 2% will constitute part of the 22.5% State participation. However negotiations betweenrepresentatives of the PPL 56 jointventures and the PNG Government are in progress in relation to this matter. The State has the right to take up to 22.5% in anydevelopment and anypetroleum development licence which results from the discovery of petroleum within the area covered by PPL 56, from thejoint ventures in proportion totheir interests in the project. The basis upon which it may do so is set out in more detail on page 40. In the Directors' forecasta total of 22.5% Stateparticipation has been taken into account.

Although there have been no known instances of expropriation in the resources section since PNG's independence in 1975, in1992 the Governmentannounced its decision to increase the Government's equity in an existing gold project at Porgera from 10% to 25%. Thismove was resisted by theother joint venturers in the Porgera project. However, a price was ultimately negotiated and accepted by all parties. Thepurchase of the additional15% by the PNG Government has not yet occurred. The directors do not consider it likely that the present Government wouldseek to increase Stateequity above 22.5% in any development of PPL 56.

Civil Unrest

The PPL 56 project is in Southern Highlands Province on the PNG mainland. Inter­tribal violence and civil disturbances inSouthern Highlands Provincedo occur. Such unrest has the potential to affect operations, site security and access roads. However, the experience ofprojects such as the Porgeramine in the highlands of PNG and Kutubu, which is 75 km from Gobe, suggests that these risks can be controlled orminimised if adequate securitymeasures are taken and sufficient time and effort are devoted to accommodate the concerns of landowners. No assurancescan be given, however, thatcivil unrest will not disrupt operations on PPL 56.

Landowners Issues

The area covered by PPL 56, like most land in PNG, is held under customary land tenure. Land held under such tenure isoften communally owned andtitle to land is often unclear. Disputes over land ownership are common, especially in the context of resource developments.Identifying all the affectedlandowners, and structuring compensation arrangements that are both fair and acceptable to all of them, is often difficult. Landownership of the SouthEast Gobe area, of which PPL56 is part, has not yet been settled. An initial hearing awarded the area to three different clansin equal shares. A hearingof the Land Titles Commission is currently in progress involving approximately 50 different clans and land that is situated bothin the Southern Highlandsand the Gulf Province of PNG. A decision on the matter is not expected until, at the earliest, late 1995. Time, effort andexpense will be required toresolve landowner issues relating to a development of PPL 56.

Unitisation

The SE Gobe Field is located over part of both PPL 56 and PPL 161. The field is to be developed and operated jointly by theinterest holders in PPL 56(of which CMS PNG is one as to 7%) and the interest holders in PPL 161 as an integrated development with the Gobe MainField. The terms andconditions upon which this will be done, including the tariff rate payable by the interest holders to the owners of the Kutubupipeline for the transportationof SE Gobe crude oil, have not yet been finalised. Negotiations of key agreements such as the unitisation and operatingagreement, the productionfacilities operating agreement and the transportation and lifting agreement are still in progress. Pursuant to pre­unitisationarrangements, ChevronNiugini, as operator of the integrated development, is currently preparing the development plan and the license applications inrespect of the SE GobeField.

Environmental Issues

PPL 56 is, and development of PPL 56 will be, subject to PNG laws and regulations regarding environment matters. PNGenvironmental laws andregulations are still developing and their impact on petroleum prospecting and development could change. Futureenvironmental laws and regulationscould impose increased capital or operating costs on the PPL 56 joint ventures and could restrict and/or delay thedevelopment of PPL 56. It is alsopossible that the PPL 56 joint ventures could experience unanticipated environmental consequences during the development

of PPL 56, and the costsassociated with addressing those consequence could be material. The extent to which future regulations or unanticipatedenvironmental consequencesmay affect the PPL 56 joint ventures cannot predicted.

Cancellation

PPL 56 is also subject to the provisions of the PNG Petroleum Act (Chapter 198) (the "Petroleum Act"). The Petroleum Actgoverns the granting ofpetroleum rights and conditions upon which those rights may be cancelled. Under Section 98 of the Petroleum Act, theMinister may cancel PPL 56 incertain circumstances. These include non­compliance with a condition specified in the license, non­compliance with aprovision of the Act, andnon­payment of any amount payable under the Act within specified periods. Any such cancellation would prohibit continuedpetroleum exploration and development.

General Economic Situation

The PNG economy has in recent years been characterised by economic difficulties which are likely to persist at least into thenear future. In 1994,doubts were raised as to the Government's ability to meet its payment obligations. The expansionary fiscal policy adopted bythe PNG Governmentbetween 1992 and 1994 resulted in progressively higher budget deficits, unsustainable import growth and, in 1994, a foreignexchange crisis. TheGovernment delivered a budget in 1995 aimed at reducing the budget deficit through increased revenues and controls onexpenditure. The InternationalMonetary Fund and the World Bank are providing financial and technical assistance to restore economic stability and promotestructural adjustment.

Foreign Exchange and Taxation

The objective of the PNG Government has been to maintain the Kina as a strong and readily convertible currency. In 1994 theKina was floated whichresulted in a depreciation of the Kina against both the Australian dollar and the US dollar. The applicable regime of currencyexchange and repatriationof profits is a reasonable one in the opinion of the Cue Energy directors".

It is clear that an investment in Cue was high risk and speculative in nature. In addition this was specifically stated on very firstpage of the 1995Prospectus (Commission Document CU327 where it was stated:­

"The shares offered under this Prospectus are of a speculative nature. Applicants should read this document in its entiretybefore deciding to apply forshares.."

The Australian prospectus was lodged on 3 October 1995 and in Papua New Guinea on 20 October 1995.

We have not been able to locate any evidence that would indicate the prospectus was presented to the Board of Trustees.The circular did not disclosethe risks, the financial status of Cue or provide evidence of any independent investment advice concerning this investment inCue (tendered DocumentCU19 to CU20).

In relation to the October 1995 share issue Wilson HTM acted as the Brokers to the issue and Wilson HTM CorporateServices Limited as Underwriters. Given Wilson HTM's role in the share issue, the presentation made by Wilson HTM (in conjunction with Cue) at the NPFBoard of Trustee meeting was not"independent" and therefore we would before have expected NPF management and the Board to critically appraise theproposed investment in Cue. Wecan find no substantive evidence of such an assessment.

The risks identified for Cue were certainly significant and having regard to a prudential assessment of the investment wewould argue warranted Boarddiscussion and assessment. Despite the extensive list of risks, the Board minutes record no such discussion or review ofthese issues.

Indeed if we compare NPF's assessment of the investment proposal with NPF's own investment policy as set out in a boardpaper on investment policiesprepared by Mr Kaul and Mr Wright dated 15 June 1994 (Commission Document 403). It is apparent that NPF's assessmentwas inconsistent withNPF's own investment policy.

Other than what is recorded in the board minutes and board papers we have found limited written documentation availableconcerning NPF's evaluation ofCue. However it is clear that judging by the Board minutes record of events and the Board Papers prepared by managementthat we have been able tolocate for these meetings that the evaluation presented to the Board is inconsistent with NPF's investment policy dated 15

June 1994. If we consider eachof the major headings: ­

Security of investment ­ no consideration notedRate of return ­ no consideration notedSocio­economic development ­ no consideration notedPotential capital gains ­ referred to in brief but no target setMaintaining control ­ referred to (board seat)Assessment and control of risk ­ no assessment of risks noted

Having regard to the investment policy we would have expected the following issues to be considered: ­

Impact of the investment in Cue on the investment portfolio balance and the investment guidelines.

The proposal would involve NPF taking a significant holding in Cue and therefore we would expect a consideration of thisissue.

Financial evaluation of Cue.

Critical assessment of the business risks of Cue.

An assessment of management's capabilities, qualifications, background and assessment of the directors businessexperience and acumen.

Consideration of the likely investment returns as measured against the associated risks of the investment in question.

Consideration of the future funding requirements of Cue and the ability of Cue to raise such funds.

Clearly an investment in Cue, as the Prospectus stated was a speculative investment and therefore this issue should havebeen considered withregard to the NPF's objectives as to the balance of the investment portfolio.

Department of Finance review and Ministerial approval

On 31 October 1995 Mr Kaul wrote an eight page letter (Commission Document 124A to be tendered as document CU51to CU58 to the Hon. Chris Haiveta, Deputy Prime Minister and Minister for Finance seeking approval for the investment in Cue under Section 61 of thePFMA.

The brief stated under the section headed "Facts and Consideration" as follows:­

"Cue are raising $10M to fund the acquisition of a 7% interest in SE Gobe oil field (PPL56) in PNG and an appraisal programof the Yolla Gas/Condensate field on the Bass Basin. Management have a strong track record and the aim is to grow the stock from a $20m toa $100m capped company in 2­3 years via acquisitions. The float represents good value on both a stag profit and long term basis and the short termoutlook has been improved dramatically by Oil Search's Makas­ 1x which looks like a commercial discovery".

The brief was not in our view an objective review of the proposed investment for the following reasons:­

The letter states:

"The float represents good value on both a stag profit and long term basis and the short term outlook has been improveddramatically by Oil search's Makas – 1 x which looks like a commercial discovery".

Mr. Kaul did not provide any evidence in support of this statement.

The comment in respect of Makas­Ix also needs to be considered Page 23 of the prospectus (Commission Document 327)stated the following in respect of Makas­1x;

"It has been reported that Makas­1 has intersected significant oil and gas shows over two main intervals of 328 metres and106 metres in the UpperCrefaceous Ieru Formation".

The submission to the Minister did not include an independent assessment of the proposal to invest and underwrite $3million worth of Cue shares. Further it did not indicate that proper due diligence and independent technical advice had been sought.The submission to the Minister did not include any information regarding financial status of Cue nor an assessment of therisks of investing in Cue. The investment brief also did not state that the investment was speculative in nature.We note from Commission Document 124A, to be tendered as document CU59to CU60, that Mr Salamo Elema, the First

Assistant Secretary of theCID carried out a review of NPF's proposed investment in Cue. The brief from Mr Elema recommended that the Ministerapprove the investment.

The brief under the name of Mr Elema supporting the recommendation to allow NPF to acquire K3 million worth of Cue shareswas two pages long. It isclear from even a rudimentary review, that the brief prepared by the Department of Finance, was merely a summary of theNPF's submission and certainlycould not be said to include an objective analysis of the proposed investment. It could be said that the Department of Financewas remiss in its role asadvisers to the Minister.

The brief did not include an assessment of the risks, and return of the investment or the fact that Cue Energy was a minorplayer in the Oil and Gasindustry.

The Minister's approval letter (Commission Document 428 to be tendered as document CU 61 dated 14 November 1995was according to a receiptstamp delivered to NPF on 29 November 1995.

It should be noted that regardless of whether the Minister for Finance had given approval or not, NPF had in fact alreadycommitted itself under thesub­underwriting agreement that had been executed. It is therefore clear that by entering into a contract, which required thepayment of more thanK500,000 without the Minister's approval NPF (through Mr Kaul and Mr Wright), breached Section 61 of the PFMA.

Review of the financial position of Cue

If we undertake a review of the 1995 financial statements of Cue as included in the prospectus we are able to identify anumber of relevant issues that theBoard should have explicitly considered in any assessment of NPF's investment decision to invest in Cue. The balance sheetof Cue as extracted from thefinancial statements in the prospectus (Commission Document 327), to be tendered as document CU62, was as follows: ­

Examination of Cue's financial position at this juncture would have revealed the following issues relevant to an investmentdecision: ­

Significant deficit on retained profits.

As at 30 June 1995, Cue had insufficient cash resources to fund an exploration and appraisal programme. A copy of the 31December 1995balance sheet taken from Commission Document 124B will be tendered as document CU63 to CU67.

Over 78% of the total assets of Cue as at June 1995 related to capitalised exploration and evaluation expenditure. Thevalue of production

properties was only A$167,368. From reading pages 20 to 29 of the prospectus (Commission Document 327) it is clear thatthe time the October1995 share issue was underway, Cue had no exploration interests with commercially proven reserves.

By the end of December 1995 as indicated by tendered document CU68 to CU69, Cue had cash on hand of A$703,394.

We note from Cue's Board papers for a Board meeting held 20th December 1995 (Commission Document 124B) that thecash flow Budget for 1996and 1997 presented to the Board (to be tendered as Document CU70 to CU71 showed a significant cash flow short­fall.

The budget indicated that Cue would have a closing cash positive position of A$1,056,386 at the end of December 1995. Thebudget further projected anegative cash position at the end of 1996 of A$1.2 million increasing to A$4.9 million at the end of 1997.

The monthly cash flow report presented (Commission Document 124B, tendered as documents CU70 to CU71) in theBoard report for the 14February 1996 Cue Board meeting, at the end of December 1995 the actual closing cash position was A$300,000 worse offthan the budgeted amount of A$1,056,386.It was also revealed that the company had only been able to raise A$8,027,998 (40,139,990 shares) of the planned A$10million. Thisimmediately led to a shortfall in the working capital of Cue in early 1996. A copy of March 1996's cash flow report taken from 3May 1996 Cue Boardmeeting papers (Commission Document 124B) will be tendered as document CU72 to CU73.

Summary of Preliminary Observations

Based on available evidence the following issues have been noted in respect of NPF's initial investment in Cue:­

According to the relevant Board Minutes and Board Report, the NPF management, (specifically Mr Kaul and Mr Wright) donot appear to havepresented the Board with any independent advice or critical appraisal in respect of the investment in Cue.NPF appears to have breached Section 61 of the PFMA by signing a sub­underwriting agreement for A$3 million withoutthe prior approval of theMinister.Mr Kaul and Mr Wright failed to properly discharge their duties by not providing to the Board of Trustees full disclosure ofrelevant informationsufficient for the trustees to properly assess the appropriateness of the investment given the risks associated with theinvestment.The Board of Trustees failed to critically assess the investment proposal put to the Board by management where nospecific guidance wasobtained in relation to speculative investments.

Mr Kaul and the Board of Trustees failed to properly discharge their duties by not providing the Minister for Finance fulldisclosure of theinformation required to make an assessment of the investment.The Department of Finance failed to critically appraise NPF's investment in Cue.

Working Capital position of Cue subsequent to the October 1995 issue

As we have already stated and as shown by tendered document CU68 to CU69 of the planned raising of A$10 million (50million shares) Cue wereonly able to raise A$8,027,998 (40,139,990 shares), resulting in a shortfall of A$1,972,002.

In the months following December 1995, the Cue Energy management explored various avenues to raise funds to finance itsworking capital requirements.The minutes of the 14 February 1996 Cue Board meeting recorded that the Board of Cue were considering obtaining financefrom the following sources:­

(i) a A$1 million overdraft from the National Australia Bank,(ii) a US$7 million loan from Commonwealth Development Corporation ("CDC"), and(iii) an overdraft facility with NPF. We note with regard to NPF providing finance that the minutes of Cue stated the following:­

"FA Jacobs stated efforts to raise working capital should suffice with NPF acting as a safety net and that other possibilities willnot be approached atthis stage".

An extract of the 14 February 1996 Cue meeting minutes taken from Commission Document 124B will be tendered asDocument CU74

Falling share price

In January 1996 the Cue share price fell from 12 cents at listing to 11 cents per share. Mr Jacobs in a confidentialmemorandum dated 22 January 1996 tothe Cue Board stated (Commission Document CU124B will be tendered as Document CU75 to CU77 that selling down ofCue shares by NationalMutual Life Association of Australasia and Nomeco Australia Pty Ltd, the fourth and sixth largest shareholders respectively ofCue, had impactedsignificantly on the share price.

This downward pressure on Cue's share price saw it close at 12 cents at 31 December 1995 falling to 8 cents by end of April1996. The option pricefollowed a similar pattern from an initial listing price of 5 cents at December 1995 falling to 3 cents by the end of April 1996.Commission DocumentC599A and 599B showing monthly share price of Cue as provided by the Australian Stock Exchange (ASX) and published byBridge DFS Publishers willbe tendered as document CU78 to CU80

The falling share price clearly impacted on a planned public issue to raise further funds. A letter dated 12 January 1996addressed to Mr Kaul and signedby Mr Jacobs indicated that given the poor share price a public placement to raise working capital would be unlikely to besuccessful. The letter indicatesthat the need for short term funding was known to Mr Kaul where it had been raised at the Cue Board meeting on 20December 1995. The full text of theletter was as follows:­

"Further to our discussion last month in Melbourne on short term funding for Cue Energy.

Primarily we are working on an equity placement with a new institutional type investor to raise at least $1 million in workingcapital. However in light ofthe currently weak share price it is undesirable to force such placement now. It is our preference to wait until anannouncement on a gas contract forYolla can be made which we expect will be in March (see attached timetable).

To bridge the potential shortfall in working capital in the interim Cue Energy is looking for an overdraft type facility of about$500,000. We are in theprogress of creating a PNG incorporated subsidiary to handle such a short term funding facility from NPF. CDC also hasindicated today a continuedinterest in an equity investment in Cue Energy through a PNG subsidiary.

We are also in discussion with the National Australia Bank if you deem a short term facility from NPF to Cue Energyinappropriate.

I would like to discuss this matter with you early next week to determine NPF's interest, terms and conditions for fundingfacility".

A copy of this letter is found in Commission Document 124B will be tendered as Document CU81

Consequently a management paper dated 18 January 1996 which can be found in Commission Document 124B wassubmitted to the NPF Board ofTrustees. The management paper sought the Trustees approval to grant bridging finance to Cue by way of a circularresolution. The management paperwas brief. It stated the following:­

"This paper seeks Board's approval to provide a bridging finance of K500,000.00 to Cue Energy Resources N.L. or its PNGsubsidiary for a period of 5months up to 30 June 1996"

Commission Document 124B to be tendered as document CU82 to CU86 shows that Trustees Michael Gwaibo, GraemeHogg, Robert Kaul,Henry Leonard and Vele Iamo provided their approval of the resolution to provide bridging finance to Cue of K500,000.

On 25 January 1996, Mr. Jacobs faxed all Cue Directors a memorandum detailing the budget forecast of Cue's cash positionfor the next twelve months. A copy of the memo and the budget paper taken from Commission Document 124A will be tendered as Document CU87to CU90

The revised budget showed an improved cash position to that of the forecast presented at the 20 December Cue Boardmeeting (tendered documentCU70 and CU71In a memorandum of Mr Jacobs addressed to the directors of Cue the following conclusions were stated:­

"1. The CDC equity is badly needed. Alternatively an overdraft facility needs to carry Cue Energy through the first six monthsof 1996.

I. The further shortfall of $1.6 million for 1996 needs to be funded. If no further equity capital could be raised, the mid yearexploration well inPPL 56 needs to be farmed out (A$800,000) T/28P exploration ($250,000) needs to be delayed and borrowings needs to beincreased.

II. For 1997, until first oil from SE Gobe, a further minimum of $1.6 million is required, principally for overheads."

A review of this revised budget indicated that the only guaranteed source of cash inflow within the next two years was from theEqualisation Payment("EP") from the PNG Government in respect of Gobe.

By 22 January 1996 we note from Commission Document 124A that Mr Jacobs had written a memo addressed to CueDirectors providing an updateof the major issues faced by Cue.

In respect of the anticipated receipt of equity from CDC, we infer from a fax attached to that memo from Ashley Emberson­Bain, CDC Regional ManagerPacific Islands, dated 16 January 1996 that CDC were interested in providing a mix of equity/loan financing of thedevelopment of South East Gobe. Itappears that CDC had initially been approached by Cue to subscribe to the October 1995 A$10 million placement but CDCLondon had rejected the offer.The reason for the rejection as per Mr Embersan­Bain was based on "the problem of subscribing to a company not registeredin PNG".

A copy of Mr Embersaon­Bain's fax taken from Commission Document 124B will be tendered as document CU91

The memo also enclosed a letter written by Mr Jacobs to Mr David Cleary of Wilson HTM on 19 January 1996 requesting MrCleary to consider a mergeroption with a company called RPM and advice on the practical aspects of a merger. This letter highlights that Cue was short ofworking capital as well as development capital.

"Cue Energy has two highly attractive development projects and a very prospective exploration permit in PNG. Therequirement for working capital,however, is urgent. The Board of Cue Energy is pursuing several options to bring working capital into the company. A mergerwith RPM, on as equitablebasis, would be considered by Cue Energy, provided that the RPM exploration commitments for 1996 can be reduced.

In short, we have the projects, RPM has the cash and on that basis it appears that a merger could be attractive to theshareholders of both companies.

We would like Wilson HTM to consider this merger option for both companies and advise Cue Energy on a confidential basisof the practical aspects ofa merger".

The merger proposal did not eventuate. A copy of the letter to Mr Cleary taken from Commission Document 124B will betendered as documentCU92 to CU93

On 29 January 1996, we note from Commission 124B that Mr. Jacobs faxed a letter to Mr. Wright, which provided an updateon recent events includinga summary of Cue's financial position. Mr Jacobs stated that as a result of the shortfall of A$2 million in the A$10 millioncapital raising, Cue was short ofworking capital and that Cue had three separate financial requirements. These were stated as being as follows:­

"1 Overdraft

I am writing to you with reference to our telephone conversation earlier today, to update you on the most recent corporateevents at Cue Energy and detailCue Energy's financial situation.

The Prospectus issued in December was a success in the sense that the minimum subscription was achieved enabling CueEnergy to complete thepurchase of CMS Nomeco PNG Oil Co. However, falling $2 million short of the target equity level that was required has leftCue Energy short of workingcapital".

To cover current operating costs, including the drilling of Beaver­1 Cue Energy requires an initial overdraft facility of about$500,000. This should see usthrough to May – June which provides Cue Energy with sufficient time to raise equity.

Raising equity is awaiting the drilling results of Beaver­1, the outcome of contract negotiations on sale of Yolla gas and thelodging of a ProductionDevelopment Licence (PDL) application for SE Gobe. Timing of equity raising is important, an overdraft facility will provide uswith flexibility on the timingof an equity placement. In the event that no equity can be secured the overdraft will be repaid out of the "Equalization"payment due to Cue Energy fromthe PPL 161 participants.

This "Equalization" payment is in recognition of the higher expenditure incurred by PPL 56, compared to PPL 161, in thediscovery and delineation of the SE

Gobe field.

2. Equity

Cue Energy ideally requires $2 equity over the next 12 months. How much we can raise and at what price depends very muchon the share priceperformance.

The Cue share price was battered down in December through the selling pressure exerted by CMS Nomeco who weredetermined to get out of their CueEnergy investment as soon as possible after the Issue. With CMS Nomeco's shares now out of the equation a largepercentage of Cue Energy'sshareholders are long term investors, improving the outlook for the share price.

Furthermore the activity over the next six months will make it a stock to buy rather than to sell. Beaver­1 results could have ahuge positive effect on CueEnergy but assuming Beaver doesn't deliver, two Makas wells are going to be drilled in the early part of 1996. These wells willhave a positive impact onthe prospectivity of PPL 56 and Cue Energy. In February a PDL application for Gobe will be lodged with publicity. Hopefully wewill be announcing thesigning of a conditional gas sales contract with Gascor, an appraisal programme for Yolla and a farmout. Yolla­2 results can beanticipated in the first halfof 1996. Towards May we look forward to the granting of a Production Licence for Gobe and the drilling of another explorationwell in PPL 56.

We believe raising the required funds with this positive outlook for the share price is possible.

3. Project Loan

Gobe 7X was a very successful well and proved up significant additional oil reserves in SE Gobe. Chevron, the operator ofGobe Project, estimates theproven and probable reserves now to exceed 69 mmbbs compared to 46 mmbbs before Gobe 7X. Because of the nature ofthe cost sharing arrangementthis will reduce the capital development cost to PPL 56 (Cue Energy) significantly.

Pipeline negotiations on the transportation tariff for Gobe crude were successfully concluded before Christmas, very must infavour of the Gobe ProjectParticipants (GPP). This was potentially a "show stopper" for the PDL application which is now in final preparation.

Attached is a table containing Cue Energy's preliminary project financing requirements for SE Gobe. The limited recourseproject loan contemplated wouldsee maximum debt peak at US$5.49 million. It is our view that such a loan would meet all normal banking measures, such asdebt/equity ratio, loan life ratio,cashflow cover ratio, etc.

Negotiations on a project loan have been initiated, the idea being that the Bank will take over the payment of development inthe 3rd quarter 1996. Arepayment schedule will be negotiated in more detail but typically a 3 to 4 year term is envisaged".

Despite the working capital deficiency, Mr Jacobs still contended in this letter to Mr Wright that the forecast provided in the1995 prospectus was still valid.This is indicated in the concluding paragraphs of Mr Jacobs's letter where he stated:­

"In short, the Directors' forecast contained in the Prospectus, despite the shortfall in the equity raising is still valid. With thefarmout of drillingcommitments in Yolla, some cost savings and fresh equity, the principles behind that Directors' forecast remain unchanged,i.e.; SE Gobe will bedeveloped with a mix of debt and equity.

As you can deduce from the format of this letter Cue Energy has entered into negotiations with Bankers on the provision of allthree of our financialrequirements, including an overdraft. If such an overdraft facility is offered to Cue Energy in the required time frame and onmore competitive terms thancan be obtained from NPF it is the Directors' intention to take the best commercial option available, as I am sure you canunderstand."

A copy of Mr Jacobs letter to Mr Wright taken from Commission Document 124B will be tendered as document CU94 toCU95

Attached to the letter was an investment research sheet issued by Wilson HTM Limited Research dated 12 February 1996with a recommendation notedas "Speculative BUY".

The brief of Cue included the following statement:

"… Development of SE Gobe will transform Cue into a meaningful oil producer with production scheduled to commence inlater 1997. A processingfacility of 50,000 BOPD capacity will provide for 2500 BOPD production from the SE Gobe field. For Cue this represents thetransformation fromexplorer to oil producer with the company's share of production in the first year of operation expected to exceed 300,000barrels".

As a footnote to the research sheet we also note that the following statement was made:­

"CORPORATIONS LAW SECTION 849 DECLARATION

The Directors of Wilson HTM Ltd advise that they and their associates have beneficial interests in Cue Energy Resources NL.They also advise that thefirm has received and may receive commissions of fees from Cue Energy Resources NL and its associates, relating todealings in securities by the firmconducted by it in the normal course of business".

A copy of the Wilson HTM Limited research sheet on Cue Energy dated 12 February 1996 is found in CommissionDocument 124B and a copy of thiswill be tendered as Document CU98.

In order to facilitate securing funding from CDC, NPF and other Papua New Guinea investors it would seem that Cueincorporated a Papua New Guineacompany called Cue PNG Holdings Pty Ltd. It is our understanding that this would enable Cue to "qualify" for CDC investmentdevelopment capital as wellas allowing Cue to borrow from the PNG Banking sector. (Commission Document CU124A

On 12 February 1996 according to Commission Document 124B, Mr. Knox of Cue sent an internal memo to Mr. Jacobsconcerning a meeting held withCDC. Mr Knox advised Mr. Jacobs that CDC preferred to provide a 6­year project loan of US$7 million. The memo set out thein­principle terms of the CDCproject loan. The memorandum was copied to the directors of Cue including NPF's Mr Kaul.

Mr Knox's memo to Mr Jacobs taken from Commission Document 124B will be tendered as document CU99 to CU102

NPF Board of Trustees monitoring of its investment in Cue – 99th and 100th NPF Board Meetings / NPF approvebridging finance to Cue

On 23 February 1996, the 99th Meeting of the NPF Board was held. The minutes for this meeting can be found inCommission Document 48. Theminutes record the following in respect of Cue:­

"5.16 Cue Energy Resources NL (CER)

The Managing Director briefed the Board on the reasoning behind the trading price of Cue Energy shares and its bridgingfinance proposals. TheManaging Director also briefed the Board on the progress of drilling at the Beaver 1 Well site. The Board took note of thebriefing."

A copy of the relevant board minute extract will be tendered as document CU103

Mr. Kaul's Board report for this meeting, which can be found in Commission Document 12 informed the Board of two specificmatters. The first matterbeing the share price of Cue was explained as follows:

"7. Cue Energy Resource NL (Cee)

Two specific issues need mentioning to the board relating to Cue Energy. The first is that the CEE prices are currently tradingat AUD0.11 whilst the twooptions are trading at AUD 0.02c and AUD 0.03c respectively. The reason being the sell off by CMS Nomeco and AustralianMutual of their shares inCEE.

CMS basically wishes to get out of Australia or this region, and Mutual suggested portfolio adjustment due to their Frenchownership, and interest in OilSearch and Cultus (a CEE partner in Yolla) and an end to their initial underwriting position to get CUE off the ground. Cue'sprice will now depend largelyon its main asset being the 7%. PPL 56 interest and on a potential gas contract with Gasco relating to Yolla".

The second of the two issues mentioned was as follows:­

"Second matter relates to the Cash flow of Cue which the Board was approached to provide a bridge financing of K500,000 for150 days (details attached).Cue Energy did consider the cost on the high side and is discussing alternatives with NAB, CDC and a possible merger with

Roma NL. Our funds wouldbe the last resort."

A copy of Mr Kaul's Board report will be tendered as Document CU104

The attachments included with the management paper no. 2/96 dated 18 January 1996 (to be tendered document CU105­107). The management paperset out in detail – the background to Cue's required 4­5 month bridging finance of K500,000 and the terms of the overdraft.

"FACTS AND CONSIDERATION

From October to November 1995, Cue Energy Resources N.L float A$10.0 million to raise funds to purchase CMS NomecoPNG Oil Co (CMS PNG)7% interest in PPL56 in the South East Gobe Oilfields; and for some drilling activities in the Yolla Gas Fields in Bass Strait.The float resulted in aA$2.0 million shortfall.

NPF, in participating in this float, bought 15 million shares at 20 cents, and therefore received the right to 7.5 million 25 centsoptions exercisable inmid 1998. NPF therefore, currently holds 16.46% of Cue Energy ordinary shares and 37.37% of the options.

Cue Energy Resources NL was listed on the Australian Stock Exchange in early December 1995.

At the time of preparing this paper the stock had gone down to 11 cents with the option trading at 5 cents due largely to CMSNOMECO off­loading2.5 million shares and 1.25 million option to the market. It has subsequently recovered to 14.5 cents.

Nevertheless, it is generally believed that the signing of the GASCOR Agreement, with ABB for the Yolla Gas project, and theresults of drilling ofBEAVER X1, MAKAS 1 and PAUA 1 would hopefully lift the share prices of Cue Energy by the middle of the year.

During the last Board meeting the Directors reviewed the projected cashflow for the company for the next 12 months, andrecognised that situation wouldbe tight until the Gobe Main Fields and South East Gobe Fields do come into production. Until then the company neededsome additional finances forits operating expenses, in light of the shortfall of the float.

The tight cash position resulted from the fact that:

a) only A$8.0 million of the anticipated A$10.0 million was raised in the float.b) There was an additional A$300,000.00 precall on Beaver 1, plus a 3 week bad weather resulting in 14 days behindschedule and now the hardand slow drilling in the Darai limestone, which may result in, additional calls on Cue Energy, being expected in the vicinity ofA$200 – 300,000.00 in thenear future.The situations have greatly hampered the company's cashflow situation. A solution is being worked on now, by management,to issue an additionalA$1.0 million for working capital.

Two sources are being explored so that the issue can be placed with an institutional investor. In the meantime, the companyseeks a A$500,000.00four (4) to (5) months bridging facility.

With respect to the bridging facility two options are being looked at:

a) a facility with National Australian Bank, which the company wish to avoid if possible due to the requirement of NAB to havea floating chargeover company assets.b) For NPF to provide, through a PNG subsidiary, K500,000.00 for a period of 4 to 5 months from February to June, a bridgingfacility.The security would consist of acceptable assets to be agreed upon, or portions of interest in South East Gobe convertible intopaper if preferred, and aBoard seat on the local subsidiary of Cue Energy Resources, NL.

The rate of the facility should be at commercial rate to be 5% above the Indicator lending rate of PNGBC or any other higherILR at the date of signing.

It is proposed that the Terms of the Facility be:

Borrower: Cue Energy Resources NL or its PNG subsidiary.

Lender: National Provident Fund Board of Trustee

Amount: K500,000.00

Term: Total of 150 days to which the facility be fully repaid, plus interest and any outstanding fees and charges.

Rate of Interest:

To be 5% above the Indicator Lending Rate of PNG Banking Corporation, or any other higher ILR at the time of signing.

Other Fees and Charges:

A establishment fee of 1/8th of the facility being K62,500.00 paid prior to drawdown or netted out at drawdown.

Reimbursement of any cost, fees or charges resulting to the Lender from this transaction".

Under the sub­heading "other considerations", the following comments can be found:­

"Since we hold a large parcel of investment in Cue Resources NL and since it has yet to receive sufficient cashflow tomaintain its operationsindependently, we should consider this financial support.

We will not be breaching any investment guidelines since we are still under the 20% of total portfolio"

The management paper produced for the Trustees by Mr Kaul failed to clearly highlight to the Trustees the inherently weakfinancial position of Cue, acompany in which the NPF had invested at this point A$3 million.

A copy of the investment schedule taken from Commission Document 12 will be tendered as document CU108

We now know from the opening on borrowings where the Commission was informed about the borrowing of A$1 million fromANZ for the purpose of NPFproviding loan finance to Cue that ultimately NPF loaned A$1 million to Cue as opposed to K500,000.

The significant issues noted which were covered in the opening on Borrowings and specifically in respect of the A$1 millionANZ loan were as follows:­

The approval of the A$1 million loan and variation from the initial approved loan of K500,000 was obtained by way of acircular resolution on orbefore 25 March 1996 and ratified at the Board meeting on 26 April 1996.

NPF initially attempted to source A$1 million from Leveraged Equities Pty Limited of NSW, Australia but this apparentlywas abandoned whenPFMA approval was not forthcoming.

The Cue Board resolved to accept the overdraft offer by NPF at the 20 March 1996 Cue Board meeting. (CommissionDocument 124B). According tothe Cue Minutes, the terms were interest of 20% per annum charged monthly in arrears with capital repayable 30 September1996 with a $10,000establishment fee and a lien over the EP. An extract of the 20 March 1996 Cue Board meeting minutes found in CommissionDocument 124B will betendered as Document CU109

On 26 April 1996 the NPF held its 100th Board Meeting. The Commissioners may recall from the Opening on Structure thatthis meeting was TrusteeCopland's first appearance as the Chairman of the NPF following the revocation of Mr. Evoa Lalatute's appointment on 25March 1996 by Mr. Chris Haiveta.

Also present at the meeting were the then Minister for Finance, the Hon Chris Haiveta and Hon. Sir Pita Lus. At this meetingthat the Board of Trusteesratified the decision to lend to Cue. A copy of the relevant extract of the 100th NPF Board Meeting is found in CommissionDocument 48 and will betendered as Document CU110 to CU113.

According to a Board paper prepared for the 3 May 1996 Cue Board meeting, (Commission Document 124B Cue's first drawdown of A$400,000 onthe NPF facility occurred on 29 March 1996. A copy of the March 1996 cash receipts of Cue copied from the 3 May 1996 CueBoard paper (found inCommission Document 124B) will be tendered as document CU114.

A review of the Board papers for subsequent Cue meetings (contained in Commission Document 124B) indicates that theNPF facility was extendedbeyond the initial approval term of 30 September 1996 and was eventually fully repaid in June 1997. The extension of thefacility past 30 September 1996would appear to have been without Board of Trustees approval. Over the period of the loan facility NPF advanced more thanA$2.5 million (CommissionDocument to be tendered as Document CU115.

The Cue Board agreed in the 3 May 1996 Board meeting that the financial situation of Cue was the most important currentissue and that more effort be putinto resolving the cash shortage.

Relevant extracts from the meeting can be located in Commission Document 124B and will be tendered as DocumentCU116 to CU118.

The minutes also record that Mr Kaul was requested by Mr Knox to approach Bank South Pacific Limited ("BSP") for funding.Mr Kaul accepted and hefurther offered to speak to ANZ PNG for a project loan. The Board then resolved that a weekly status report on financing plansbe provided to thedirectors.

In a memo dated 9 May 1996 to the directors of Cue including Mr Kaul of NPF found in Commission Document 124B, MrJacobs outlined plans toaddress the resolutions reached in respect of the funding requirements of Cue at the 3 May 1996 meeting. The memo alsoincluded a revised budget. Examining the budget it is noted that the revised budget showed actual cash deficiencies at March 1996. The deficiency wasexpected to increase toA$1.4 million at the end of June 1996. The cash position was forecasted to improve from July 1996 onwards with theforecasted receipt in July of the PNGVenture Fund equity and EP of A$921,795. The forecast showed that CDC project loan would be drawn down commencingAugust 1996 resulting in aforecasted cash surplus at the end of December 1996 of A$1 million. A cash surplus of A$24,547 was forecasted for 1997 asopposed to the previousforecast deficit of A$3.3 million (tendered document CU70 to CU71).

The memo reads as follows:­

"Due to my absence from the Board Meeting last Friday it is probably useful to put on the record my own opinions on a varietyof issues discussed atthat meeting, as well as detail the plans to address the resolutions of that meeting.

I. Working CapitalA revised budget forecast with an explanatory note from A Knox is attached. It shows no long term (structural) workingcapital shortfall, incontrast to the budget included in the Board papers. I apologise for the wrong budgetss with regard to the cost of Beaver – 1and the calculation of the"Accumulated Liability". My absence from the office from time to time or the preoccupation with other matters is not an excusefor these critical errors.

Nevertheless, the Budget demonstrates the financial viability of the Company until oil production from SE Gob commences,provided a short termadditional credit facility of $1 million is secured.

There was particular concern at the Board meeting about the equity injection from CDC from its PNGVF. Whilst the PNGVFmight very well be withoutfunds, CDC has explained to me that the promised equity of US$450,000 could be provided from a number of other funds. Assuch, I am at this stagenot concerned about the chance of this equity injection not materialising, although the assumed timing has to be regarded asoptimistic

(July absolute earliest). I therefore believe it prudent to secure an additional $1 million overdraft.

With the assistance of Robert Kaul we have requested an overdraft from the Bank of South Pacific in Port Moresby. Ananswer to this request isexpected within ten days……"

II. CDCOur financial health is to a large degree dependent on the implementation of the financing as proposed by CDC. We havesigned letters of intent onboth the equity and loan aspects with CDC. I have every reason to believe CDC will come through. It is our single highestpriority to ensure that thishappens. As such I would appreciate if the Board members don't take formal steps to communicate with CDC on this subject.It is a managementresponsibility to secure this financing package and I believe the best course of action was to pay the fees as agreed and haveCDC come along at theirown pace.

I have spoken to Diana Reeves today confirming the field visit as outlined in her fax and my reply (attached).

CDC will be approached for an overdraft if BSP doesn't provide the requested facility.

III. Alternative FinancingWith letters of intent signed with CDC, and extremely attractive conditions associated with these loans possible, it is going tobe counter productive toinvite alternative proposals from competing banks.

If CDC does let us down, I propose a rearguard effort involving ANZ/BSP/NPF primarily. Another option is the IFC in Sydneywhom I visited on 23 April1996, or Rothschilds but seriously pursuing a full fledged alternative at this stage is premature and counter productive……."

IV. ManagementIt is inappropriate for the Board to discuss the potential redundancy of specific employees, particularly in my absence. If costsneed to be cut to thepoint that salaries are going to be effected then the Board only needs to make the directive to me to cut costs. How I thenachieve savings ought to beleft largely to me.

If and when costs need to be cut it is my intention to reduce all salaries and consulting fees proportionally, ensuring that alltechnical and managementskills that are currently available to Cue remain available.

What I can assure you of is commitment of management to see Cue through this short term cash problem. We all remainwithout question focussed onachieving success for Cue Energy."

Mr Jacobs commented in the memo that provided a short­term additional credit facility of A$1 million was secured, the budgetdemonstrated the financialviability of the company.

A copy of the memo together with the attachments referred above are found in Commission Document 124B and these willbe tendered asdocument CU119 to CU127A

On 16 May 1996 Mr Jacobs formally wrote to Rothschild Australia Limited("RAL") seeking a A$1 million overdraft facility withRAL to ensure workingcapital in the event of delays of CDC equity/loan Finance. A copy of the letter written to RAL together with the attachment isfound in CommissionDocument 124B and will be tendered as document CU128 to CU129.

On 23 May 1996, Mr Knox received a fax from Mr. Jenkinson of BSP setting out proposed arrangements in respect of a K1million overdraft. A copy of thisfax is found in Commission Document 124B and will be tendered as document CU130 to CU132. The fax set out theterms of the overdraft whichwere stated as follows:­

"In the absence of any formal commitment from CDC and the possibility that the MRDC float may be delayed and that MRDCmay opt to pay for the ALPfrom oil revenue (rather than a cash payment) any involvement of the Bank must necessarily be secured by 'tangible security'.In this regard we requirea financial charge to be held over the mining lease PPL 56".

Mr. Jenkinson stated that NPF had offered to provide security to the Bank by way of a letter of undertaking that NPF wouldarrange refinance or effectclearance of the loan upon request by the Bank in the event that­

a) CDC do not proceed; andb) MRDC elect to pay the ALP from future and revenue supported by Term Deposits i.e. on a Kina for Kina basis.This support was conveyed formally to the Bank through a letter dated 29 May 1996and signed by Mr Kaul. A copy of theletter found in CommissionDocument 124B will be tendered as Document CU133.

This letter is important because it resulted in NPF undertaking to maintain a minimum of K32 million in deposit funds with BSPand risk of default beingassumed by NPF and without prior Board approval.

The letter stated:­

"CUE ENERGY RESOURCES NL (CER)

National Provident Fund ("NPF") is a significant shareholder in CER and has recently given additional support by way of aK1.0 million working capitaladvance.

We are aware that Bank of South Pacific Ltd (the "Bank") is currently assessing an application by CER's wholly ownedsubsidiary Cue PNG HoldingsPty Ltd for a K1.0 million facility to support its working capital requirements in respect of Mining Leases PPL56.

NPF would support provision of this facility to the extent that during the term of the facility, NPF will undertake to maintain aminimum of K32.0 million indeposit funds by way of comfort to the bank with the Bank and agree to refinance the facility in the event that the facility is notrepaid by expiry date fromeither of the under­mentioned sources namely

Loan funds and equity injection from Commonwealth Development Corporation and/or Accumulated Liability Payment MRDC

We agree that before the Bank makes a call against NPF, the bank will first recover or exhaust all attempts to recover anymonies owing including

interest and fees from securities held before NPF is requested to refinance the bank facility.

This undertaking shall cease to be effective upon the CER fully discharging of its liability to the bank."

The BSP K1 million facility was finally approved on 30 May 1996. A copy of the facility letter is found in CommissionDocument 124B and will betendered as Document CU134 to CU136.

It is important to note the following issues concerning the financial status of Cue and the conduct of the Management andTrustees of NPF during thisperiod of time where NPF provided equity and debt finance to Cue.

The first matter to note is that the Cue budgets (tendered documents CU70­CU71, CU87–90 and CU119­CU127A)prepared and provided tothe Cue directors including Mr Kaul showed a shortfall in working and development capital on both a short and long termbasis.The apparent failure of Mr Kaul to disclose Cue's funding problems to the Board of Trustees.It is noted that without the short­term loan of A$2 million from BSP and NPF, Cue would not have been able to meet itscommitments. As far as wecan determine from the Board minutes and Board Reports Mr. Kaul never fully disclosed the inherent weak financial positionof Cue to the NPFBoard. This was a material fact that should have been made known to the Board where it was assessing an investmentdecision with regardsto Cue.• Pledging of NPF's assets for security to BSP with regard to a Cue loan facility with BSP apparently without the approval ofthe Board ofTrustees• It would appear from the documentary evidence available that Mr Kaul pledged that NPF would hold a minimum balance ofK32 million worth ofIBD's with BSP for the duration of Cue's loan with BSP. It would appear that this undertaking was provided to BSP without theexpress authorityof the NPF Board.• Undertaking to BSP to refinance loan in the event of Cue not repaying by expiry date.

The NPF Board was advised of NPF's undertaking to refinance the BSP loan by way of the management report issued withthe Board reports(Commission Document 114) for the 101st Board Meeting held on 28 June 1996. This appears to have been providedwithout the express approval ofthe Board of Trustees. Mr Kaul requested the Board to ratify the refinancing commitment at the 101st Board meeting. By thistime NPF had alreadycontracted with Cue and BSP. The minutes do not record whether the Board approved the refinancing commitment and thepledging of asset. An extractof the management report (Commission Document 14) for the 101st Board meeting in respect of Cue will be tendered asDocument CU137.

On 4 July 1996, Cue issued a press release to both the Australian and New Zealand stock exchanges which indicated that thearrangement for the CDCProject Loan of US7 million, PNG Venture Fund US$1 Million equity and RALA $1 million overdraft were going smoothly. Acopy of the release found inCommission Document 124B will be tendered as document CU138 to CU140.

Cue's attempted share and convertible note issue to raise A$43.2 million ­ May 1996 to September 1996

Between May ­ September 1996 it is evident from a review of the minutes of Cue Board meetings that Cue attempted to raiseA$43.2 million through theissue of a mixture of ordinary shares and convertible notes with ANZ Corporate Services and Wilson HTM acting asunderwriters. This capital raisingexercise however did not eventuate but is worthy of review as it provides evidence as to NPF's willingness to invest further inCue.

Investment appraisal and Board approval

The capital raising exercise initiated by Cue was to enable it to bid for the acquisition of Mount Isa Mines Holdings Limited("MIMPEX") portfolio of petroleumand gas assets. In Papua New Guinea, MIMPEX interests were held by its wholly owned subsidiary Barracuda (PNG) Limited.The decision to acquire theMount Isa Mines petroleum and gas assets was initially put forward to the Cue Board of Directors at the 3rd May 1996 CueBoard Meeting (CommissionDocument 124B). The relevant board minute extract was as follows: ­

"4.6.4 Barracuda (MIM)

AM Knox indicated that the possibility of a merger between Cue and Barracuda had recently received some encouragement.JA Mumford recommended

that in view of the decision under Agenda Item 3.4, this matter should be discussed with the Board before expendingsignificant management effort."

The decision under meeting Agenda Item 3.4 'Working Capital Requirements' was that the Board resolved to put on "hold" thecurrent strategy ofacquisitions until the company had secured the necessary financing. The relevant extracts of the minutes will be tendered asDocument CU141 toCU144

From the records available to the Commission it appears that the NPF Board first became aware of the offer by Cue seekingNPF to participate in a A$43.2million share placement at the 101st Board of Trustees Meeting held on 28 June 1996. The minutes for that meeting recordthe following in respect of theoffer by Cue:

"The Managing Director spoke of Cue Energy and its offer of 16.4 million shares for K6.4 million. This would ensure that NPFmaintains its 15% holding. If the offer is not accepted then NPF shareholding will be diluted down to 10%. Following discussion it was resolved tomaintain equity levels at existingpercentages so additional shares would be purchased in the new issue."

A copy of the relevant extract of the minutes is found in Commission Document 48 and will be tendered as DocumentCU145

We note from an examination of the Department of Finance files in respect of Cue (Commission Document 5B) that the filesinclude a brief to theTrustees of NPF concerning Cue, which was signed off under the name of Mr Kaul. The brief sought the Trustees "initial non­committed interest toparticipate in the funding of the possible acquisition of MIM's oil and gases interest in PNG, Indonesia, New Zealand andAustralia". We cannot find anyevidence that this briefing paper was ever presented to the trustees.

A review of the NPF Board Papers for this meeting which can be found in Commission Document 14 reveals thatmanagement did not provide theBoard of Trustees with relevant background or a specific investment brief paper for the proposal put to the Board at themeeting. A copy of the brief willbe tendered as document CU146 to CU150.

The intention of Cue to acquire MIMPEX was made known to Mr Kaul and the other Cue Board minutes by Mr Jacobs on 10May 1996 after MIM HoldingsLimited made a press release on 9 May 1996 to sell its gas and oil business. A copy of the fax from Mr Jacobs together withthe press release is found inCommission Document 124B and will be tendered as Document CU151 to CU156.

Between 10 May 1996 and the 101st NPF Board of Trustees meeting held 28 June 1996, Mr Kaul received furthercorrespondence from Cue in respect ofthe acquisition of MIMPEX. A fax from Mr Jacobs on 27 June 1996 indicates that RAL were also interested in participating inthe share placement. Itappears from this fax that RAL required documentation for a more careful evaluation of Cue's proposal. A copy of the fax fromMr Jacobs together withthe RAL letter is found in Commission Document 124B and will be tendered as document CU157 to CU158.

A draft information memorandum on the proposed capital raising and acquisition was found in the Cue Board papers for the 5June 1996 meeting(Commission Document 124B) and will be tendered as Document CU159 to CU197.

The minutes record that at the 5 June 1996 Cue Board meeting Mr R Coppin, an Exploration Manager at Cue, gave atechnical presentation on the MIM oilportfolio for sale which included assets located in PNG, Australia, Indonesia and New Zealand to the directors. At this meetingthe Board gave approvalfor management to finalise an internal valuation of MIMPEX and provided approval to approach cornerstone investors forsupport. The minutes record thatMr Kaul attended this meeting. An extract of the minutes for this meeting is found in Commission Document 124B and willbe tendered as DocumentCU198.

Consequent to the board approval we note from Commission Document CU124B that Cue issued an informationmemorandum. The informationmemorandum included cash flow forecasts, budgets, and an updated description of the combined assets of Cue and MIMPEXas well as the Director'svaluation of these assets. Although a draft copy of the information memorandum was made available to Mr. Kaul,(Commission Document 124B) wecannot find a copy of the information memorandum amongst NPF's Board Papers.

Based on the record of minutes of the 101st NPF Board of Trustees meeting held 28th June 1996 (Commission Document48) and the board paper forthis meeting (Commission Document 14) it would appear that Mr Kaul failed to fully inform the Board as to the specific

purpose of Cue's capital raisingexercise.

The day after the 101st NPF Board of Trustees meeting a fax dated 29June 1996 signed under the name of Mr Kaul to MrJacobs stated:­

"Please be informed that the Board of Trustees of NPF agreed on Friday to maintain it's 17.58% interest in Cue Energy.

In doing so they requested that an additional directorship for NPF be considered by the Cue Chairman and Board.

To ensure NPF maintain a 17.58% we have already acquired 2 million shares at the market to bring us to 19.78% of issuedcapital and we would seeCue's agreement for an additional 19.969 million shares if the MIMPEX bid is successful.

In addition I presume this will mean that NPF will be entitled to 21.969 million convertible options at 12% to mature on30/6/2000. Please confirm this tous.

Please be advised that I will be on two weeks leave from 1/7/96 – 14/7/96. Please contact Noel Wright [ 3258148 ] if you needto in my absence."

A copy of this fax is found in Commission Document 124B and will be tendered as Document CU199 to CU200.

TheNPF Minutes for the 101st meeting (Commission Document 48 / to be tendered as Document CU201 state:­

"10.8 Cue Energy Resources NL

The Managing Director spoke on Cue Energy and its offer of 16.4 million shares for K6.4 million. This would ensure that NPFmaintains its 15% holding. If the offer is not accepted then NPF shareholding will be diluted down to 10%. Following discussions it was resolved tomaintain equity levels at existingpercentages so additional shares would be purchased in the new issues".

As can be seen there are a number of inconsistencies between the records of the 101st meeting minutes and this fax. Theseare:­

The minutes do not indicate that the Board of Trustees requested an additional seat on the board of Cue. The minutes record that Mr Kaul had informed the Board that NPF's current shareholding was 15%. Tendered document(CU[ ]) howeverindicates that NPF's shareholding at this time was 19.78%. Mr Kaul also failed to inform the Trustees that NPF had bought 2million shares.On 2 July 1996, Mr. Jacobs responded to Mr. Kaul's fax of 29 June. A full copy of the letter is found in CommissionDocument 124B and will betendered as Document CU202 to CU203). The letter was faxed to Mr Wright. The letter reads as follows:

"Dear Robert,

Thank you for your letter dated 29 June 1996 indicating NPF's desire to remain a 17.58% shareholder in Cue Energy throughparticipating in an equityraising required for a successful acquisition of MIMPEX.

On current plans the number of ordinary fully paid share on issue after the MIMPEX acquisition would be 216.3 million. ForNPF to remain a 17.58%shareholder it would require 38.03 million shares. With NPF now holding 18.06 million shares it would want to subscribe for19.969 million shares at$0.15, as stated in your letter

The current equity raising plan would require subscribers for shares to take up an equal number of Convertible Notes. NPF'stotal required investmentto maintain a 17.58% holding would be:

19.969 million shares @ $0.15 $3.0

19.969 million Convertible Notes @ $0.25 $5.0

A$8.0 million

Please review the material that has been sent to NPF in regard to this matter as there seems to be a possiblemisunderstanding in the fourth paragraphof your letter.

The Convertible Notes carry an interest rate of 12% and will be repaid on maturity on 30 June 2000. Alternatively theconvertible noteholder, at itsdiscretion, can convert the Notes into fully paid shares. It would obviously only be attractive for the noteholders to do this if theshare price were to beover $0.25.

NPF's request for an additional directorship has been passed on to the Cue Chairman."

We infer from this letter that in order for NPF to maintain its current shareholding, it would have to spend a total of A$8 million.At June 1996 the Kina:Australian dollar rate was 0.9861 (Bank of PNG Quarterly Economic Bulletin this equates to K8,112,767. The board resolvedat the 101st NPF Board ofTrustees meeting to purchase 16.4 million shares at a cost K6.4 million so as to maintain 15% shareholding.

The 17 July 1996 Cue board meeting minutes record the following in respect of the Cue's planned acquisition of MIMPEX.Again the minutes record thatMr Kaul attended this meeting.

"4.6 Acquisition Opportunities:

4.6.1 MIMPEX ­ FA Jacobs presented the MIMPEX acquisition opportunity.

The proposal is to raise $50 million. $18.75 million, in equity and $31.25 million by convertible notes at 25c/share. NPF haveagreed to provide$3 million equity and $5 million in convertible notes. Rothschild have agreed to take the balance of the convertible notes. ANZSecurities andWilsons HTM are discussing providing the $15.75 million in equity remaining but at between 10­15 cents/share depending onthe market price after theannouncement of the acquisition.

Both EG Albers and PCR Hatton expressed concern about diluting the existing shareholders' if the share price placementended up at less than 15cents. Various permutations on the fund raising were discussed.

FA Jacobs requested Board approval to advise the Brokers we wish to proceed, with the pricing to be agreed to at a later date.The Board approvedthis."

A copy of this extract of the Cue minutes can be found in Commission Document 124B and will be tendered as DocumentsCU204 to CU205.

Our examination of the minutes of Board meetings for this period of time found in Commission Document 48 has revealedno board resolution by theNPF Board of Trustees approving NPF to acquire A$3 million in equity and A$5 million in convertible notes in Cue. The Boardresolution for the 101stmeeting stated:­

"it was resolved to maintain equity levels at existing percentages so additional shares would be purchased in the new issue."

As we have mentioned the minutes for this meeting indicate that the information provided to the Trustees were not correct.

Mr Kaul also wrote the following letter dated 13 August 1996 to Mr. Rupa Mulina, the Secretary of Department of Finance:­

"As per our discussion this morning, I have attached a copy of the original prospectus of Cue Energy for your review.

In addition, I have also attached a copy of Brief on the Mount Isa Mines Exploration assets (MIMPEX).

In a nutshell Cue Energy is 19.76% owned by NPF and we have a seat on the Board. This holding will be reduced if theMIMPEX bid was successful,resulting in NPF diluting to 17.58%.

Cue Energy NL's sole major asset is 7% of PPL 56 (Southeast Gobe) oil fields, with Cue's share valued at about US$39.00million.

Cue Energy's strategy is growing by mergers and acquisitions, and the Bid for the MIMPEX assets is with this overall growthstrategy.

MIMPEX is an exploration company owned by MIM through a PNG based company called Barracuda (PNG) Ltd and sinceMIM has indicated it'swillingness to sell non coal investments, it's PNG and Indonesian assets just happens to fall within that category, hence Cuehas decided to bid.

The Barracuda assets in PNG is worth over US$50.00 million (both developed, proven resource and exploration rights) andCue intends to bidUS$42­45 million for this assets as an ongoing interest.

Cue therefore seeks cornerstone investors for the raising of the money and the NPF Board has indicated subject to Ministerialapproval and the successof the bid, that they would maintain a 17.58% interest by taking up an underwriting position of up to 20% of the MIMPEX fundsraising to maintain itoriginal interest in Cue Energy. For this commitment we have asked the brokers for a brokerage fee for our participation, i.e.;3­4% of K8.0 million willbe up to A$320,000.00.

The brokers Wilsons HTM and ANZ Securities therefore seek to have an appointment with you and your POSF ManagingDirector to discuss thisinvestment opportunity.

If you require further information, please do not hesitate to call me".

A copy of this letter is found in Commission Document 124B will be tendered as document CU206to CU207.

The brief attached enclosed an extract from an updated information memorandum dated 7 August 1996. A copy of the brief isfound in the Department ofFinance files (Commission Document 5B) and will be tendered as Documents CU208 to CU302.

On 19 August 1996, at the Cue Board Meeting the board revised the amount to be raised from A$50million down to A$43.2million. The amount would beraised through issue of A$18 million equity and A$25.2 million convertible notes. The relevant extracts of the 19 August 1996meeting minutes (full copy isfound in Commission Document 124B) will be tendered as document CU303 to CU304.

On 27 August 1996, the NPF Board held its 102nd Meeting. The Managing Director's report included in the Board papers forthis meeting which can befound in Commission Document 15 contained the following information in respect of Cue:­

"17. Cue Energy NL

Cue Energy's financial problem has been resolved through the NPF, BSP, PNGVF and CDC funding.

At the time of writing this report, K900,000.00 of our financing has been repaid and we expect the balance next month oncethe equalisation payment andthe CDC US$5.4 million funding is received.

The BSP facility is also expected to be repaid at the same time next month.

The CDC equity of US$1.0 million has been received, which was used to partially retire the NPF and BSP facility.

Cue Energy activities are now generally concentrated on the MIMPEX bid where the Board on the 19th August approved thebid submission forsubmission last Wednesday the 21st August to MIM.

The granting of the Development License for the Gobe fields is expected next month."

The relevant extract from Mr Kaul's report found in Commission Document 15 will be tendered as Document CU305 toCU306.

The records of the 102nd Board of Trustee meeting minutes had the following recorded in respect of Cue Energy:­

"6.14 Cue Energy Resource NL

The Managing Director reported on the matter. Discussion ensued during which it was noted that Cue energy's currentactivities is concentrated on theMIMPEX bid to buy out Barracuda which, if successful, would move its holding up to 17% in South East Gobe, NPF nowholding approximately 19.88% inCue Energy. It was also noted that there have been moves by Cue Energy to supply gas for Tasmania's Energy requirementswhich are looking good andthat considering the risks/exposure and the possible gain, it is a worthy investment for the Fund.

After discussion it was resolved to take up any convertible notes in Cue Energy if those are not taken up by other parties.

It was also noted that whilst the Board approved the Fund's holding at approximately 17.88%, given the purchase, the Fund'sholding now stands atapproximately 19.88%. It was resolved to approve and ratify the purchases up to this current level of holding."

A copy of the relevant extract of the records of the 102nd Meeting minutes is found in Commission Document 48 and will betendered as documentCU307 to CU308.

A number of observations can be made including:­

The minutes do not indicate any concern raised by the Trustees of the fact that between February 1996 and June 1996that NPF managementhad without the approval of the Board purchased on market 3,156,500 shares at a total cost to the members of A$310,759.NPF does not appear to have obtained any independent advice or due diligence on the investment in Cue.The resolution provided discretion to management to purchase any number of convertible notes, if no other investor tookup an interest.No apparent consideration given by management or the Trustees concerning the increased investment in Cue with regardto:­a) risk of investment where clearly speculative

b) large holding in stock where NPF held a number of other PNG resource based stocksc) investment guidelinesNPF commitement has changed from that approved by the NPF Board at the 101st board meeting of K6.4 million to overA$8 million.The share placement exercise evolved during the ensuing weeks where the amount sought from NPF increased(Commission Document 124A). A faxdated 30 August 1996 to NPF on Cue headed paper under the name Mr Jacobs, Commission Document 124B, that a bid forMIMPEX would not bepossible without significant support from PNG institutions and requested that POSF and NPF take up the full A$25 millionconvertible notes.

In return for NPF and POSF's participation Cue in a fax sent by Mr Jacobs, Commission Document 124B to both Mr Kaul ofNPF and Mr Ereman Ragi ofPOSF dated 30 August 1996 stipulated the basis on which Cue sought NPF's commitment to invest in the convertible noteissue:­

A 3% commission on the NotesTerms and conditions for the Notes as outlined in an indicative term sheet provided (Commission Document 124B).Cue would consider relocating from NZ to PNG with a view to establishing itself as a PNG Company.The right to underwrite or partake in the additional equity raising on a preferred basis.The appointment of Mr. David Copland as Chairman of the Board of Cue Energy.In the fax Mr Jacobs required a definitive agreement by 5 September 1996 to enable Cue to make an unconditional bid withMIM Holdings Limited.

A copy of this fax is found in Commission Document 124B and will be tendered as document CU309 to CU312.

Cue was clearly targeting NPF to provide a substantive element of the A$32.5 million required to make a successful bid forMIMPEX. In return for this, Cuewas, as evidenced in the aforementioned letter, prepared to grant NPF an additional Board seat on Cue (i.e. the Chairmanshipof Cue to Mr. Copland of NPF).

Following Mr Jacobs's request, Mr. Kaul and Mr. Wright circulated a signed management paper 16/96 dated 2 September1996 to the NPF Board of Trusteesand requested that the Trustees respond by close of business the next day. A copy of the management paper obtained fromthe NPF correspondence filefor the Department of Finance (Commission Document 89) will be tendered as document CU313 to 315

The management paper was clearly plagiarised from Cue's own proposal to NPF and could not be said to include anyadditional independent or objectiveanalysis of the investment proposal. We, assisting the commission say that the brief to the Board was focused solely on thepotential positive aspects ofthe investment, and failed to highlight risks and implication of the proposed additional investment in Cue. In this regard, it isour view that management failedin its role to properly inform and advise the Board of Trustees and it could be said were in consequence negligent. In additionto the benefits offered byCue as outlined in Mr Jacobs's fax of 30 August 1996 (tendered document CU309 to CU312), Mr Kaul and Mr Wrighthighlighted the following concerningthe Cue proposal:­

"The notes are a low risk, high reward instrument, particularly in light of the Independent Expert report valuing the Barracudainterest in SE Gobe aloneat between $25.6 and $32.7 million. Furthermore for PNG Institutions, income tax exemption could be available for interestreceived on such notes. This still needs to be confirmed.

The funds for the acquisition would not be required until the end of October and $25 million would be a maximum exposureonly, as the underwriterscould endeavour to place the notes with other institutions. I believe we can negotiate a better underwriting fee than 3% onAUD 750,000 but at this stagethat is the offer.

"The positives for NPF are as follows:

(a) As the Board agreed in June, Cue needs this deal to make them a size player in PNG Oil and Gas. This would increasethe marketcapitalisation of Cue to AUD 50 million.

(b) The acquisition would make Cue net asset backing at least AUD 0.174 per share.

(c) AUD 750,000 in underwriting commission

(d) If the Bid is unsuccessful no cash changes.

(e) 11% interest on the notes is attractive.

(f) POSF is looking at it seriously so we could farm some of the exposure to them. However, they have not committed as yet.

(g) The acquisition would result in Cue buying into SE Gobe at a significant discount to Oil Search. This we believe couldcreate some of thelarger institutions switching from Oil Search to Cue.

(h) If the bid is successful it should be relatively simple to sell down some of the notes to Australian institution as it will be a'done deal' at thatstage and the cash is not required until the end of October.

(i) ANZ loan facility is in place to fund this.

We don't see a lot of negatives because if the Bid is successful Cue becomes a real player in PNG Oil and Gas and hencethere will be plenty of bluesky in the share price.

If, however, the Bid is unsuccessful nothing changes. The underwriting is only subject to a successful bid and under thesecircumstance the AUD 25million will be more than covered by the Net Assets of Cue".

The statement that the proposed notes were low risk, high reward instruments is in our view at odds with the fact thataccording to an informationmemorandum dated 7 August 1996, (Commission Document 5B) (prepared by Cue for the capital raising exercise withregard to the proposedacquisition of MIMPEX), the Convertible Notes were to have the following terms:­

"The 125 million Convertible Notes issued at a price of A$0.20 under this proposal would initially be held by less than twentyinvestors. The Notes willbe unsecured and attract on interest rate of 11% / annum".

In our view the Convertible Notes could not be classified as low risk where:­

­ Cue did not have a proven profit history to support future profitability and serviceability of the interest and capital redemption.­ Cue was in its early development stage of its corporate development.­ The Convertible Notes were unsecured and as far as we are aware were unrated.­ The underlying business activities of exploration and development could not be viewed as low risk but rather are morecommonly considered highrisk.­ Where the notes were convertible to ordinary shares, which would be classified as high risk.Mr. Kaul requested approval from the then Deputy Prime Minister and Minister for Finance, the Hon Chris Haiveta in a letterdated 2 September 1996(Commission Document 5B). We will address the approval of this investment decision by the Minister shortly.

On the 6 September 1996, Cue's Mr Jacobs sent a copy of a letter sent by Cue to MIM Holdings to Mr Kaul regarding its offerfor MIMPEX. A copy of the faxand attached letter is found in Commission Document 124B. Cue was according to the letter "offering itself as a flexiblebuyer". In addition to the offerletter ended with the following:­

"This bid would not have been possible without significant backing from Papua New Guinea. This investment support hasreceived enthusiasticapproval from the Deputy Prime Minister and Minister of Finance, Hon Chris Haiveta".

The responses of the Trustees taken from Commission Document 290 will be tendered as document CU316 to CU323.

Investment decisions without express NPF Board approval

Cue failed in its bid for MIMPEX and NPF was advised of this by way a memorandum dated 24 September 1996 issued by MrJacobs to the directors ofCue. The Memorandum in question can be found in Commission Document 124B and a copy will be tendered asDocument CU324­326 According tothe memorandum the reason for the failure was stated thus:­

"Yesterday it was announced that MIM has sold its oil and gas interest to SANTOS. Cue Energy's bid was competitive but nothigh enough to overcomeMIM's doubts regarding our ability to complete. The additional underwriting agreement submitted to MIM on 13 Septemberwas not strong enough andby the 20 September when an unconditional underwriting agreement was signed it was too late".

WILSON HTM

The fundamental cause of the failure to acquire MIMPEX was the decision by Wilson HTM not to take $2 million inunderwriting exposure at whatappeared to be at the last possible moment.

However, David Cleary very early in the piece told me his firm was going to take very little exposure in the underwritingagreement. It was never theirintention to take a $2 million exposure.

David Cleary told me later, after the Underwriters had agreed to take $2 million exposure each, that his firm had a largeprivate investor lined up to takeon Wilson HTM's exposure.

I believe that neither ANZ or NPF were aware of that backdoor deal. It was not a concern to Cue Energy, as we simply wanteda signed underwritingagreement, confident the underwriters would not have to be called on.

I don't know what happened to this private investor but the fact of the matter was that on Friday evening 13 September, uponexecution of the documents,at the absolute last minute, with MIM waiting for hours to receive an underwriting agreement, with no forewarning, WilsonHTM refused to sign theunderwriting agreement.

I was the only one that knew that Wilson HTM was never going to take any direct exposure. It was irresponsible and plaindeceitful of Wilson HTM toleave Cue Energy, ANZ, NPF, POSF and MIM stranded like that.

I became further outraged when I heard that Steve Wilson subsequently complained to ANZ that Wilson HTM was kicked outof the underwritingagreement.

NPF

It was unfortunate that David Cleary was in NPF's office with Robert Kaul when Wilson HTM withdrew from the underwriting.

It must have been an absolute shock for NPF. Cleary's explanation regarding marketing risk, whether it was indeed the causeof Wilson HTM'swithdrawal or not, must have been alarming.

ANZ and NPF saved the situation on 13 September but due to the loss of confidence by NPF and the subsequent withdrawalfrom the underwriting,several valuable days were lost. When NPF, with Wilson HTM back in the fold, started to pursue the POSF signature again,and finally decided to takeon the entire exposure, it was all too late.

ANZ SECURITIES

ANZ didn't do a particularly good job with the marketing of the sub­underwriting to Australian institutions, however, they werecommitted to the Companyand the acquisition.

Within two hours of Wilson HTM's withdrawal they had a (conditional) underwriting agreement in place, and kept it in place fora whole week, despite thewithdrawal of support by NPF.

They saved the Company major embarrassment. ANZ was also particularly good to Wilson HTM. Even after the nearcriminally late withdrawal, ANZoffered the next day for Wilson HTM to be paid fees, become a broker to the issue, or come back as a joint underwriter.

The building of a relationship with ANZ is certainly one of the positive outcomes of this bid.

MIM

Cue's view of the sales process and the tactics used in the bid cannot be faulted.

The interpretation that very few international companies would be interested in the package was correct. The right offer priceand a proposal wereprofessionally formulated. Until a very late stage Cue Energy was the only serious bidder.

Having said that MIM didn't provide any co­operation. No acknowledgement of our bid was ever received. The "technical"condition of having to obtainPOSF Board approval was used as an excuse not to negotiate with Cue.

The underwriting agreement was signed on 20 September 1996 but by this time MIM Holdings Limited had gone to otherbidders."

A copy of the bid letter is found in Commission Document 124B and will be tendered as document CU327 to CU329A.

Exploring the events leading up to this reveals a number of issues that require highlighting.

There is evidence to suggest that Mr Kaul made unapproved variations to the amount to be underwritten by NPF, inrespect of Cues share issue.The involvement of Mr Haiveta in securing POSF's support in the capital raising. The role of Mr Copland.The facts are as follows:­

On 4 September 1996, Mr. Kaul received two faxes from Mr. Jacobs and one from Mr Cleary. These are found inCommission Document 124B. MrCleary's fax will be tendered as document CU 330 to CU 336 and Mr Jacobs's fax will be tendered as Documents CU337 ­340.

Mr. Cleary's fax attached a joint letter from Wilsons and ANZ Securities as the "Underwriters" inviting NPF to confirm NPF'soffer to sub­underwrite 17million new shares totalling A$2.04 million and 23 million convertible notes totalling A$23 million. If NPF were called upon tofulfil their obligations under theUnderwriting Agreement, the total cost to NPF would have been A$25.04 million (tendered Document CU331).

As has already been noted the share issue was conditional on Cue winning the bid for MIMPEX (excluding its Indonesianinterest) and on Cue entering intoa binding underwriting agreement with the underwriters and approval of the Cue shareholders being obtained.

The underwriters offered NPF a fee of 2.5% of the dollar amount of shares and convertible notes subscribed by NPF and a1.5% of the dollar amount ofshares and convertible notes lodged by NPF. The underwriters would receive a fee of 3.5% of the dollar amount of shares andconvertible notessubscribed by NPF and a 1.5% of the dollar amount of shares and convertible notes lodged by NPF (tendered DocumentCU331­332)

The fax from Mr Jacobs also included a draft letter for NPF's review. The draft sent by Mr Kaul to Cue was for the purpose ofassuring MIM HoldingsLimited that Cue was serious about its bid for MIMPEX and had the backing of its shareholders including NPF.

Mr Jacobs's letter reads as follows:­

"As you are aware Cue Energy is going to make a bid for MIM's petroleum assets, excluding the Indonesian properties.

If successful with that acquisition, $10 million in equity will be placed with new investors at $0.12/share. Furthermore,unsecured Convertible Notes witha face value of $25 million carrying an interest rate of 11% will be offered to a limited number of institutions. These ConvertibleNotes could at theholders' choice be converted to shares at $0.20/share.

In addition to their own investigations, independent legal, accounting and expert advice has been received by the directors ofCue Energy and on thisbasis the Board is in a position to recommend the acquisition and equity raising to shareholders if successful.

Such a transaction would result in a significant expansion of the Company and would be subject to shareholder approval,which the directors intend toseek in October, following a successful bid. A full information memorandum and specific resolutions will be put to shareholdersat that time.

Whilst we don't wish to deprive shareholders of their rights to review all relevant details the Board is now writing to the majorshareholders to canvastheir support for this line of action.

A letter from National Provident Fund of PNG is requested confirming support for Cue's bid for MIM's petroleum assets,excluding the Indonesianproperties, and the associated equity raising.

This letter is required by Wednesday 4 September 1996 to enable inclusion with the bid document, indicating to MIM thatshareholder approval will beforthcoming. A suggested response letter is attached.

Thank you for your assistance in this matter."

The suggested response letter attached to the fax read as follows:­

Dear Frank,

With this letter National Provident Fund of PNG expresses it support for Cue Energy's bid for MIM's petroleum assets, asdetailed in your letter dated 2September 1996.

National Provident Fund of PNG should be able to support specific resolutions dealing with this acquisition and the associatedequity raising at theExtraordinary General Meeting.

We congratulate Cue Energy on this initiative and hope your endeavours are successful."

As requested, on the same day Mr Kaul typed the response letter on the NPF letterhead, signed it and faxed the letter to MrJacobs. A copy of this fax isfound in Commission Document 124B and will be tendered as Document CU341.

On the following day, 5 September 1996, Mr Kaul wrote a fax to Mr Cleary of Wilson HTM notifying NPF's acceptance of thesub­underwriting offer. MrKaul attached the subscription form to the fax. Mr Kaul signed the subscription form and the seal of NPF was affixed.(tendered Document CU342­343).

Also on the same day, Mr Jacobs made an offer to MIM Holdings Ltd for MIMPEX (excluding its Indonesian operations) forconsideration of A$44 million. The consideration consisted of A$34 million plus a A$10 million deferred contingent payment. Mr Jacobs stated in theconcluding paragraph of the offerletter the following:

"This bid would not have been possible without significant support from Papua New Guinea. This investment support hasreceived enthusiastic approvalfrom the Deputy Prime Minister and Minister of Finance, Hon. Chris Haiveta."

A copy of the offer letter has been tendered as Documents CU328 to CU329A.

On the next day, Mr Jacobs faxed another letter, which indicated the critical roles NPF and POSF had in the acquisition ofMIMPEX. The fax also attached aone­page letter, which stated that the underwriting agreement had not been signed. The letter stated as follows:­

"Dear Robert,

This morning I faxed you the letter that was submitted to Mr. Stump of MIM yesterday. As you can see from that letter theUnderwriting Agreement (for 35million) has not been signed. The best possible situation, as I understand it from David Cleary, is:

As you can see without the POSF signature we have an extremely bad situation, with POSF we are only $2 million short atthis stage. It is absolutelyimperative to obtain POSF's written confirmation of its sub­underwriting position.

ANZ and Wilson HTM are attempting to find institutions to fill the $2 million and maybe POSF might want to sub­underwrite alittle more. We have goodhopes that by the middle of next week we should have the Underwriting Agreement signed but only if POSF comes to theparty.

I wish to express on behalf of the rest of the Board of Cue Energy our sincere appreciation for NPF's unrelenting support andcommitment to theCompany."

A copy of the fax is found in Commission Document 124B and will be tendered as document CU344 to CU345.

On the 9 September 1996 the date that the Underwriting Agreement was due to be signed and forwarded to MIM HoldingsLimited, Mr Dobadoba of POSFsent a fax to Mr Kaul advising that the management of POSF had declined to sub­underwrite the new shares and convertiblenotes in Cue. He furtheradvised that the POSF Board were not considering any new investments as they were in the process of reviewing theirinvestment portfolio.

A copy of this fax is found in Commission Document 124B and will be tendered as Document CU288.

On the same day after a discussion between Mr Jacobs and Mr Kaul, Mr Jacobs faxed a draft letter, which clearly Mr Jacobshad drafted for the Ministerfor Finance consideration largely for the purpose of expressing his support for Cue's bid for MIMPEX. The letter read asfollows:­

"Dear Mr. Stump

I am writing to you with regard to the proposed sale of your company's petroleum interests.

From our understanding of these interests, the major part of the value lies in Barracuda Pty Ltd which holds 20% in PPL 56containing the South EastGobe Oil field. As well as being the operator of PPL 56, Barracuda is the operator of a number of other prospecting licenses inthe vicinity of theKutubu – Gobe developments.

Naturally, we are closely interested in the outcome of the sale process because of its potential impact on the Gobedevelopment and surroundingprospecting licenses.

I am aware that one of your co­ventures in the Gobe project, namely Cue Energy Resources NL, has submitted a bid for all ofthe MIM petroleuminterests excluding your Indonesian properties. A major part of the financial support for Cue's bid is being provided by PapuaNew Guinean institutionalinvestors.

As a result of a successful bid by Cue, Papua New Guinea interests would become the controlling shareholders in thecompany.

Naturally, as the Minister for Finance, I am keen to see the ownership of Papua New Guinea's resource projects remain asmuch as possible in PapuaNew Guinea hands. I look forward to hearing the outcome of the Cue bid."

A copy of the fax from Mr Jacobs and the draft letter is found in Commission Document 124B and will be tendered asDocuments CU346 to CU348.

Having failed to provide the signed underwriting agreement to MIM Holdings Limited on the promised date of 9 September1996 Mr Jacobs had a meetingwith Mr Stump on that day. (Commission Document 124B). Following the meeting Mr Jacobs wrote a fax to Mr Kaul on 10September 1996(Commission Document 124B) which indicated that Cue had been given until midday of the next day (11 September 1996)to provide a signedunderwriting agreement.

Mr Jacobs fax bears reading in full:­

"Dear Robert,

Re: MIMPEX Underwriting

On Monday I again had contact with James Capel, MIM's agent handling the sale of MIMPEX. After the weekend review of thebids there is no doubt CueEnergy is probably the leading bid contender. However, we are not being taken seriously unless the bid is underwritten.

The sales process is moving forward and I believe we have 24 hours, until Wednesday midday, to come up with a signedunderwriting agreement.

With the setback from POSF I believe there to be only one realistic chance of signing the underwriting agreement and that iswith the sole commitmentfrom NPF.

If NPF sub­underwrites $31 million, with ANZ and Wilson $2 million each the current underwriting agreement can be signedand submitted to JamesCapel. That will at least keep us in the race.

The NPF underwriting position should attract the highest "stand­by" sub­underwriting fees. "Stand­by" sub­underwriting, as faras I understand it, meansthat the Underwriters will, in the first instance, commit to unwinding $6 million of NPF's sub­underwriting position beforeunwinding their own exposure.

In the second instance, Cue Energy will commit to negotiating with MIM to buy Barracuda alone i.e. Not the WA and Qldassets. This would lower thepurchase price to $28 million (not $34 million) again, eliminating the $6 million "stand­by" facility now sought from NPF.

Thirdly, Cue Energy would, if successful invite David Copland to attend all Board meetings, and relevant negotiations toensure that NPF's interest arethe highest priority.

Fourthly, Cue Energy, if asked to buy all assets currently bid for, would undertake to repay sufficient of the convertible notes toNPF from (a) asset sales(Qld and WA $6 million), (b) "Equalisation" payment ($3.3 million) or (c) "Accumulated Liability" repayment ($6 million) toensure NPF's exposure isless that $25 million.

Fifthly, to assist the Underwriters in covering additional costs Cue Energy is prepared to increase the underwriting fees by0.5%.

Robert, I believe NPF is the only one that can rescue the bid at this late stage. Again, we are forced to seek your assistance.In return, I give you mypersonal undertaking that such additional $6 million commitment, if called upon, will be repaid before the end of the year".

It is clear from this faxed letter the key matters at this stage were that

­ Cue now required NPF to underwrite substantially the whole issue and ­ Cue was linking Cue's successful bid for MIMPEX to a board seat for Mr Copland.The fax was copied to Mr Copland, Mr Cleary and Mr Ristrom. A copy of this fax is found in Commission Document 124Band will be tendered asDocuments CU349 to CU350.

Mr. Kaul wrote to Mr Jacobs on 12 September 1996, a copy of which can be found in Commission Document 124B, in whichit was stated that Mr Kaulhad spoken with Mr Ereman Ragi of POSFB to request that POSFB underwrite an additional K2 million. A letter written to MrHaiveta by Mr Kaul on 11September 1996 found in Commission Document 5B indicates that Mr Kaul and Mr Cleary had explained the details of thenew capital raising toMr Mulina, the Secretary of Finance and Chairman of the Board of POSF.

"My dear Minister

RE: CUE ENERGY NL BID FOR MIMPEX

Minister, let me thank you for your support given to NPF which has ensured the Fund to continue with its investment plans.

I also thank you for the approval you recently gave to the Fund to sub­underwrite the A$25.0 million for the Cue Bid for theMIMPEX assets.

Minister, Mr David Cleary of Wilson HTM Brokers and I had a breakfast meeting this morning with Secretary Mulina on CueEnergy in respect to POSFand PNGDFRBFs' participation in the Cue Bid. During the meeting we explained all the necessary details to Secretary (areasdiscussed attached) anda copy of the information memorandum, the Bid documents and a copy of the sub­underwriting and subscription applicationwere handed to him.

Minister, I believe the Secretary is now better informed on the various projects owned by Barracuda (MIMPEX), which Cueseeks to purchase and will beseeking his Board and Management to approve some level of investment in Cue Energy relating to:

a) Equity at A$0.12 per share andb) Convertible notes of 11% to mature 30/6/2000Minister, the Secretary has asked me to discuss this matter with you and request your support by way of approval for POSFand PNGDFRBF once orwhen their Board has approved an investments of between A$4­10 million.

Minister, I believe Cue will have a good future when this bid is won. We would also like it to be a Papua New GuineanCompany, and it can only be sowith the support of NPF, POSF and PNGDFRBF.

Minister, I seek your support for POSF and PNGDFRBF Board and Management to invest in this bid"

A copy of the letter is found in Commission Document 5B will be tendered as document CU351 to CU353.

On the next day, Mr. Kaul received a fax marked "Urgent" from Mr Albers. The fax indicates that Mr Albers was highlyappreciative of Mr Kaul's efforts tofinalise the sub­underwriting. Mr Albers believed that Cue Energy had the winning bid and that he urged Mr Kaul to doeverything in his power to getPOSF's signature to participate in the sub­underwriting. A copy of the fax can be found in Commission Document 124B andwill be tendered asdocument CU354.

Also on 12 September 1996, Mr Kaul received a fax from Mr Jacobs. The fax contained a letter written by Mr Jacobs to MrAustin Miller of HSBC­JonesCapel. We understand HSBC­Jones Capel were acting for MIM Holdings Limited for the sale. The letter read as follows:­

"The situation with the Underwriters is that they are waiting for one signature on a sub­underwriting agreement from a PNGinstitution (POSF).

Mr. David Cleary from Wilson HTM travelled to Port Moresby on Monday to secure the verbal commitments made by POSF.Unfortunately the POSFChairman, Mr. Rupa Mulina is also Secretary of Finance and Chairman of MRDC. Between the float of Orogen and his otherduties it has been difficultto gain access to him.

Nevertheless, yesterday morning during a breakfast meeting the details of a sub­underwriting agreement were finalized. Iexpect the paperwork to be

finished today.

As with all aspects of Cue Energy's proposal on MIMPEX, care is being taken to secure an underwriting agreement that willstand up and guarantee MIMa successful completion.

We anticipate signing of the underwriting agreement today and offer to withdraw our proposal for MIMPEX at 4.00pm onFriday 13 September if nounderwriting agreement has been signed. Until then we hope you will consider Cue Energy's bid as a serious alternative toyour current negotiations."

A copy of this letter is found in Commission Document 124B and will be tendered as Document CU355 to CU356.

Also on the 12 September 2000, Mr Kaul sent a hand written fax to Mr Joe Wingia, POSFB General Manager Investments.The fax stated as follows:­

"Sorry to disturb you but its getting crucial that you get a firm sign sub­underwriting for A$6.0 million from POSF andPNGDFRBF. Without it Cue's bidwill not be signed and the MD of Cue has advised MIM that it will withdraw its bid by tomorrow.

Would appreciate a written response by lunch today, please".

A copy of this fax is found in Commission Document 124B will be tendered as Document CU357.

Mr. Jacobs replied to Mr. Kaul's fax. The fax dated the same day read as follows:­

Thank you for your letter. I am responding on behalf of Geoffrey Albers and myself for the time being, but I am sure the fullboard will endorse thiscommitment.

The Underwriters would endeavour to reduce NPF's exposure to Cue Energy to a maximum of 19.9% of the fully paid sharesand an amount ofconvertible notes acceptable to NPF, prior to completion.

Upon completion of MIMPEX David Copland will be appointed Chairman of Cue Energy.

In the event that NPF has convertible notes in excess of what is deemed acceptable, the Underwriters will endeavour to placethese notes with otherinvestors, post completion. The objective of obtaining a listing for the notes on the ASX would also aid in divestment of theNotes by NPF.

If an unsatisfactory position remains after having attempted to place the Notes, Cue Energy will undertake to redeem part ofthe Notices from receipt ofthe Accumulated Liability payment and/or the sales proceeds of MIM's Queensland properties. Note that the EqualisationPayment is specificallyexcluded from this undertaking, as it is required for working capital.

The last undertaking is probably in the best interest of Cue Energy as well, as it will reduce interest costs.

We can assure you of a satisfactory outcome for NPF. Thank your for NPF's extraordinary support."

A copy of this letter is found in Commission Document 124B and will be tendered as Document CU358.

Mr Kaul successfully secured POSFB's irrevocable general sub­underwriting and firm subscription for 35 million new shares(A$4.2 million) and 6 millionconvertible notes (A$6 million). This was confirmed to Mr. Cleary by fax from Mr. Wingia of POSF. However the subscriptionby POSFB was conditional onPOSFB being allocated a board seat on Cue and approval by the POSF Board.

A copy of this fax is found in Commission Document 124B and will be tendered as Document CU359 to CU360.

As a result of the POSFB subscription on Friday 13 September 1996, Mr Kaul faxed an amended subscription form for NPF,which consisted ofA $19 million in convertible notes and A$2.04 million in equity giving a total for NPF of A$21.04 million. A copy of the signedand sealed irrevocable offer ofgeneral sub­underwriting and firm subscription is found in Commission Document 124B and will be tendered as DocumentCU361.

However on the Friday 13 September 1996 Mr Jacobs sent the following fax to Mr Ristrom, Mr Kaul and Mr Cleary. The faxstated:

"I have had a conversation with Austin Miller who called to confirm receipt of my fax. He indicated MIM is available tonegotiate on the weekend providedthe unqualified support of the Underwriters is available today.

Geoffrey has drafted a circular resolution for the POSF Board to sign off on. I believe Robert or David should arrange for JoeWingia to circulate this tothe POSF Board today. It is drafted in such a manner that not all Board members have to sign for it to be binding.

I believe changing the Underwriting Agreement will severely hamper our chances"

A copy of this fax is found in Commission Document 124B and will be tendered as Document CU362.

The draft circular resolution for the POSF Board's consideration, drafted by Cue was faxed to Mr. Kaul by Mr. Jacobs. A copyof this draft circular is foundin Commission Document 124B and will be tendered as Documents CU363 to CU364.

However, at this time Mr Kaul sent a hand written fax dated 13 September 1996 to Mr Jacobs and Mr Ristrom stating that dueto the uncertainty of thecapital raising in relation to the acquisition of MIMPEX, NPF was withdrawing its sub­underwriting support.

A copy of Mr Kaul's fax is found in Commission Document 124B and will be tendered as document CU365. It appears fromtendered DocumentsCU324 to CU326 that Mr Kaul wrote this fax having learnt from Mr Cleary who was at the NPF office that Wilsons HTM hadwithdrawn from theunderwriting.

Correspondence found in Commission Document 124B indicates that on Monday 16 September 1996, Mr Jacobs faxed athree­page letter to Mr Kaul inan attempt to rescue the underwriting of the share placement. The fax header sheet found in Commission Document 124Bindicates that the letter wascopied to Mr Copland and Mr Cleary.

The full letter stated as follows:­

I am writing in anticipation of MIM confirming the Underwriting Agreement is an acceptable basis on which to commencenegotiations on the SalesAgreement for the MIMPEX acquisition.

In such an event the plan is to be in Brisbane on Monday and meet with David Copland and David Cleary to repair thedamage to NPF's confidencecaused by the withdrawal of Wilson HTM from the underwriting. I will then travel to Port Moresby with Andy Ristrom of ANZ toget your furtherconfirmation of NPF's underwriting position.

I am sure Cleary has told you Wilson HTM's Board didn't approve their underwriting position of $2 million because theyperceived risk with the marketingprocess. The argument goes that very little institutional support was received during the pre­marketing of this issue, WilsonHTM couldn't rely on theirprivate clients because Cue Energy is making an "excluded" offer to professional investors and thus, there was a risk thatWilson HTM could get stuckwith the shares.

The reasoning is self serving and nothing new. First of all I told both the Underwriters at the beginning of this bid that this dealshould not be attemptedto be sold to mainstream Australian Institutions. As with the current TAP float and in the early days with Cultus Petroleumother investors, particularlyoverseas investors need to be called on. It is a matter of size.

ANZ and Rothschild are confident that between $10 to $20 million can be raised in the USA. These are major firms that havean international network,unlike Wilson HTM. It was impossible to approach this market for sub­underwriting leading up to the MIMPEX bid.

However, I have given a presentation to ANZ's New York representative who was very enthusiastic. On that basis and with thesub­underwriting fromNPF and POSF, ANZ has underwritten Cue Energy's offer to MIMPEX on Friday evening.

I understand from Andrew Ristrom that in addition to the signed sub­underwriting agreement that was in place with NPF afurther $2 million was agreed tobe sub­underwritten by NPF on Friday evening in return for a 5% fee on that incremental amount. As it currently stands thesub­underwriting position is asfollows:

In return for NPF's continued support ANZ and Cue Energy assure you of the following:

1. The highest priority is to reduce NPF's exposure to a resulting shareholding of 19.9% which would mean an uptake ofroughly 13.3 millionshares for an investment of $1.6 million.

2. The second highest priority would be to reduce NPF's equity and notes uptake to its preferred position. As explained in myletter to you dated10 September 1996, this can be achieved by a variety of ways:

­ firstly, prior to Completion of the acquisition by placements with other investors,

­ secondly, subsequent to Completion through listing of the Notes and

­ thirdly, by redemption of the Notes by Cue Energy.

3. The third priority would be to unwind ANZ's exposure. (I am not sure to what extent POSF wants to be wound back.)

4. The fourth priority would be to raise further working capital, if required.

The marketing trip to the USA is not only aimed at placing the current issue of shares and convertible notes but also to createa demand for the sharessubsequent to this issue in order to built a more diversified shareholder register over the next twelve months. We believe it tobe important for DavidCopland as future Chairman of Cue Energy to join us on the marketing trip that has been planned for New York andWashington. His presence helpsCue Energy and it would provide him with first hand input into managing NPF's exposure.

As Cleary says "there is nothing wrong with the fundamentals of this deal, or Cue Energy". As David Copland remarked"there is no downsidefor NPF in this acquisition". Nothing has changed. Cleary was devastated that his company didn't approve hisrecommendation. He simply had been too busy with POSF to put forward the latest financial projections and marketing developments to convince his Board.

The withdrawal of NPF's support at this stage would be extremely damaging, not only to Cue Energy, the Underwriters(including Wilson HTM), but alsoto NPF. I believe credibility is at stake here for all involved. Please stick with the commitments that have been made foranother week. I am sure wecan manage the situation but give us time to outline the plans and detail the assurances.

I am looking forward to implementing this acquisition for the absolute benefit of the shareholders of Cue Energy and to thecredit of all involved".

A copy of the letter has been tendered as Documents CU366 to CU369.

That same day, Mr. Jacobs sent another fax to Mr. Kaul (Commission Document 124B). It attached a two­page letteraddressed to Mr. Kaul. The letterprovided a new underwriting proposal aimed at raising A$31 million and for the purpose of acquiring MIM's subsidiarycompany Barracuda Limited.

A copy of the fax is found in Commission Document 124B and will be tendered as Documents CU370 to CU373.

On 24 September 1996, Mr Jacobs faxed a two page memorandum to the Directors of Cue (tendered document CU324 toCU326) informing them thatMIM had sold its oil and gas interest to Santos. He commented that Cue's bid was competitive but was not high enough toovercome MIM's doubt regardingCue's ability to complete. In the memorandum, Mr Jacobs provided an analysis of the performance of each of the partiesinvolved in the Cue Energy bid.

On 27 September 1996, Mr Cleary wrote a fax to Mr Kaul (Commission Document 124B). The fax attached a letter advisingMr Kaul that:­

"We have been advised by Cue Energy that its bid for selected MIM petroleum interests has been unsuccessful. Theunderwriting arrangements for the

bid between Cue and ourselves have therefore been terminated.

As a result, our sub­underwriting arrangements with you (refer to our letter of 20 September 1996) are also terminated…."

The stock exchange release indicated that MIM Holdings had sold most of the assets including Indonesian assets for sum ofA$45.1 million. A copy of thefax with the attachments found in Commission Document 124B will be tendered as Documents CU374­378.

NPF Board of Trustees informed of Cue's failed bid for MIMPEX – 103RD Board Meeting held 18 October 1996

The NPF Board was formally informed of the failure of Cue's bid at the 103rd NPF Board meeting held on 18 October 1996.Mr Kaul's report to the Board forthis meeting which can be found in Commission Document 16, to be tendered as Documents CU379­380 provided theBoard with the followingupdate:­

"Cue Energy NL.

This is to inform the Board that the Cue bid for MIMPEX was unsuccessful. Santos won the bid, however, this does not affectthe objective to make Cueexpand by mergers and acquisitions to reach a hundred million in capitalisation in the next 2­3 years as Cue management'sand Board's objective.

The Chinese company that is to buy the 10 million shares from the Orogen float is also interested in buying our Cue interest[18.07 million shares] orour options [20 million].

The Board is to decide whether we sell or hold onto our interest and have them involve in other ways like farmouts explorationpotential's in PPL 56subject to Cue Board approval.

Management does not have any recommendation on this matter but seeks Boards guidance on this issue.

The minutes record of the Board Meeting state:­

"Cue Energy NL

The Chairman informed the Board that the Fund and Cue have lost the bid over assets of Barracuda and that currently:­

(i) Cue is looking into new mergers/acquisitions including additional exploration(ii) Cue is looking into new partnerships to explore gas developments in Petroleum Prospecting licence 56, in which it holds aninterest;(iii) China National Petroleum Consortium ("CNPC") have enquired whether NPF is prepared to sell its interest in Cue.(iv) The Cue Board thought CNPC would introduce substandard equipment, which together with other factors may affect anydevelopment andtherefore would be happy to allow CNPC to participate but only on a farm­in arrangement.It was agreed to sell off the Board's interest to CNPC if an acceptable offer was received otherwise an aggressive stancewould be maintained to growthe company".

The relevant extract of this meeting minutes and Board report for this meeting taken from Commission Document 48 will betendered as documentCU381.

Ministerial approval in respect of NPF investments in Cue in the period 1995 to September 1996.

If we examine the files of the Department of Finance submitted to the Commission is answer to a Summons, we find that MrHaiveta's approval letter foundin Commission Document 124B stated as follows:­

"I refer to your letter dated 2nd September 1996.

In accordance with Section 56 of the Public Finance Management Act 1995, I hereby approve the National Provident Fund tosub­underwrite A$25.00million in convertible notes of 11% due 30th June 2000, and on terms and conditions as those set out in a Trust Deed.

Any variation upwards to the above amounts should seek my prior approval".

A copy of Mr Haiveta's letter will be tendered as Document CU382. We have been unable to locate NPF's request letter. Thefollowing matters areworthy of note:­

The resolution (tendered Documents CU313 to CU315) circulated to the NPF Board of Trustees was dated 2 September1996. The resolutionrequired responses from the Trustees by close of business the next day, which we presume was 3 September 1996 where themanagement paper wascirculated on the day that the paper was dated.The files provided to the Commission of Inquiry by the Department of Finance (Commission Documents 5A­E and 53and 54) include nointernal briefings to the Minister concerning this investment. Prima facie, it would appear that the Minister for Finance providedapproval for this transactionwithout taking formal advice from the Department of Finance.The approval given by Mr Haiveta was clearly provided under the incorrect section of the PFMA where the approval wasgiven under Section 56of the PFMA. This section deals with borrowing by overdraft. The relevant section should clearly have been Section 61.

Summary of Issues in respect of MIMPEX

NPF was the only significant potential investor in respect of the planned share and convertible note issue for the MIMPEXbid and was willing tounderwrite substantially the whole issue.It is worthy of note that Wilson HTM Limited withdrew from the underwriting agreement late in the day, where theirunderwriting exposure wasrelatively minimal at A$2 million. This course of action may be indicative of the nature of the share/debt issue and lack ofgeneral investor interest.If MIMPEX equity / debt issue had been successful, and NPF had invested in accordance with the sub­underwritingagreements, this would haveresulted in NPF retaining 23% of the issued share capital of Cue at a total investment cost of A$5.3 million and A$23 million ofconvertible notes.This would have represented by any benchmark a significant investment, and would also have had the effect of furtherconcentrating the Fund's risk inCue and the PNG Resource equities in general.

The Conduct of Management in this issue in terms of its investment analysis where there does not appear to be anyevidence of critical objectiveanalysis or independent investment advice is consistent with a lack of appropriate management and investment skills beingexercised within thecore management team.The conduct of NPF Management (Mr Kaul and Mr Wright) where management information presented to the Board in theform of the Board Papersappears to have been limited.On the available evidence management appears to have acted beyond its authority where 3,156,500 of Cue shares werepurchased between 27February 1996 and 28 June 1996 without specific board approval.Although these transactions were subsequently ratified at the request of the Board, the minute record of the relevant boardmeeting would indicate,where the trustees did not criticise management, that the trustees accepted this management practice of investing withoutproper Board approval. This apparent acceptance is indicative of the apparently inappropriate conduct of the Trustees in terms of their fiduciary dutiesas trustees.

The trustees may be open to criticism with respect to the Board resolution of 27 August 1996 concerning the convertiblenotes, where theresolution permitted management to take up A$25 million of convertible should these not be taken up by any investor / sub­underwriter.The Minister for Finance, the Hon Chris Haiveta granted approval to NPF to sub­underwrite the A$25 million in a letter dated 2September 1996 (tenderedDocument 382). A Management Paper circulated to the trustees (tendered Document 313­315) dated 2 September 1996requested that the trusteesprovide a response by the end of the following day. We would therefore assume that management could not have been in aposition to go ahead with thetransaction where the trustees were not required to respond until the earliest 3 September 1996.

The Minister's role in providing approval under the NPF/PFMA Acts as stated in the earlier hearings on Structure is that ofapproval only, and thiscan only be properly given where there is a proper board resolution passed in a properly constituted board meeting asspecified in the National ProvidentFund Act and Rules. The Minister's approval states that the approval was given in response to Mr Kaul's letter dated 2September 1996. We have to datebeen unable to locate a copy of that letter.Inspection of the Department of Finance files submitted to the Commission has not disclosed any evidence to suggest thatthe then Minister forFinance, the Hon Chris Haiveta, MP sought any formal advice from his department in respect of the approval granted to sub­underwrite theConvertible Notes.Cue Corporate Strategy after failed MIMPEX transaction

Subsequent to Cue's failed bid for MIMPEX we note that Cue's Mr Jacobs wrote a memo to the directors of Cue dated 1October 1996 seeking further

endorsement of the company's corporate plan for growing the company through acquisitions. A copy of this memo is found inCommission Document124B and will be tendered as document CU383 to CU384.

"As early as late last year Cue Energy's Corporate plan of attempting to grow through acquisitions was questioned. Now withthe failed attempt to acquireMIM's petroleum assets I believe it to be responsible to seek further endorsement of the Corporate Plan or seek a redirectionfrom the Board.

We have not had much luck over the last 21/2 years; the effort with the Delhi acquisition was great and the outcomedisappointing. Similarly the MIMacquisition was a bitter disappointment but these two failures together with the successful purchase of CMS Nomeco's interestprove that if we stick tothe plan and create other opportunities success will come. Andrew Adams has put together a list of current opportunities,which is attached.

We have now laid a considerable amount of groundwork that is going to make the task progressively easier.

· Cue Energy is now listed on the ASX· Cue Energy has significant institution support from PNG· The relationship with ANZ Corporate Services has developed· A relationship with CDC and Rothschild has been established· Near production from SE Gobe.Any significant change to the Corporate Plan would destroy Cue's capacity to raise money and shareholder support,particularly from PNG. The currentshare price is an embarrassment but as shown with the MIM acquisition shares can be placed at, at least 12.5 cents. Anysignificant change to theCorporate Plan would further erode the share price.

I am probably the most disappointed with the absence of a definitive breakthrough but I am willing to continue until at least firstoil production toimplement the current Corporate Plan if endorsed by the Board to do so.

Current working capital is sufficient to pay the current level of overhead expenses indefinitely. That should not ease the effortsto cut cost wherever wecan and it would be my objective to retain our current professional capacity at the lowest possible cost.

However, a number of cost cutting measures were considered and the conclusion is that the benefits are marginal.

The following measures were considered:

1. Cut the MD's salary by $50,0002. Cut the Director's consulting rates3. Cap the Directors consulting fees to a monthly maximum4. There is reduction in the exploration overheads. We could consider cutting Bob's time back but that would force him to takeon otherconsulting work, tarnishing the Cue image.5. Replacing Bob with a local explorationist6. Make Andrew Adams redundant. On the surface maybe an easy decision but on all the cost/benefit considerations probablynot worthwhile.7. Moving the office; painful with marginal benefits and a very large negative impact on industry perception.No other substantial cost savings are possible and I advocate to continue with the current work force on the same basis".

On 11 October 1996, at the Cue Board meeting, the Board resolved to continue the acquisition strategy for at least twelvemonths subject to financialcapacity but augment this with opportunity to enhance the share price and value of the Company through a more vigorous andentrepreneurial businessapproach. A full copy of the minute of this meeting is found in Commission Document 124B and will be tendered asDocument CU385 to CU389.

Potential buyer of NPF's share and options in Cue

In mid October 1996 we note from Commission Document 124B that the Chinese National Petroleum Corporation ("CNPC")informed Mr Kaul of theirinterest of a farm­in on Cue's PNG interests as well as purchasing NPF's shareholding in Cue. The Cue Board were informedof CNPC's offer to NPF at theCue 11 October 1996 Board meeting by Mr Kaul (tendered Document CU389). On 15 October 1996 Mr Jacobs wrote to MrKaul advising that Cue wasextremely happy with NPF as a major shareholder and that NPF's investment will pay off for the members in the medium term.He suggested to Mr Kaul thatan offer of 25 cents per share would be very attractive for NPF. The full text of this letter was as follows:­

"Dear Robert,

Re: Approach by Chinese National Petroleum Corporation (CNPC)

Thank you for bringing to the Board's attention the interest that CNPC has in participating in the SE Gobe development.

As discussed during the Board meeting Cue Energy would not be divesting its interest in PDL 3 (SE Gobe ProductionLicence) or PPL 56 unless a verysignificant premium is offered. I believe the same is true for the other participants in the SE Gobe development; there are nosellers.

Participation by CNPC in the development of the PNG oil industry could be more realistically pursued through exploration. Anumber of farminopportunities are available and if CNPC has difficulty identifying them, Cue Energy would be able to assist.

From the newspaper reports and the correspondence we have seen, the involvement of the CNPC in the development of thePNG oil industry seemspolitically driven. In that sense I feel obliged to point that the oil industry views a Chinese involvement in SE Gobe as forced.Particularly their desireto be an operator which has had very practical problems in the past. Substandard equipment, lack of hard currency and asignificant language barrierall contributed to the significant problems CNPC had as an operator.

Further to our discussion on Friday it needs to be reiterated that Cue Energy is extremely happy with NPF as a majorshareholder. We appreciate thatNPF's obligations to its members is the highest priority and we very much feel that in the medium term NPF's investment inCue Energy is going to payoff.

However, at $0.25/share an offer for NPF's holding in Cue Energy could be attractive to NPF. It could also be helpful to CueEnergy, particularly ifCNPC remained just a shareholder (rather than take over the whole Company) and NPF came back in as a shareholderthrough the market. This sort ofscenario certainly would re­rate Cue Energy's share price. However, I personally believe CNPC will have difficulty handingover cash and, secondly, isunlikely to be a shareholder in a public company.

If there is anything else you wish to discuss in relation to CNPC don't hesitate to give me a call".

A copy of the letter is found in Commission Document 124B and will be tendered as Documents CU390 to CU391.

It should be noted that according to the quoted share price obtained from the ASX at October 1996 the closing share pricewas 7.4 cents (Australian) andthe price for options was 1.7 Australian cents. The share and options prices of Cue as provided by ASX are found inCommission Document 617 and616 respectively and these will be tendered as Documents CU392 to CU404.

The records of the NPF meeting minutes show that the views of Cue were advised to the Board at the 103rd NPF Board ofTrustees meeting held on 18October 1996 by Mr Copland. The Board minutes record that "It was agreed to sell off the Board's interest to CPNC if anacceptable offer was receivedotherwise an aggressive stance would be maintained to grow the company" . The relevant extract of the minutes found inCommission Document 48will be tendered as Document CU405.

We have not sighted the offer from CNPC. We note from a letter dated 25 October 1996 that Mr Kaul advised Madam JennyHau of Abel King Investments(PNG) Pty Ltd, who we presume was acting on behalf of CNPC, on a no negotiable basis that NPF was willing to sell itsshares for 20 cents per share andoptions at 10 cents per option. Mr Kaul's stated that the offer was made on the basis of future upsides in Cue.

A copy of the offer letter is found in Commission Document 124B will be tendered as Document CU406.

Given the very low market price of Cue at that time it appears that the price set by Mr Kaul in his letter to Abel KingInvestments (PNG) Pty Limited wasperhaps unrealistic where the share price was 7.4 cents and the entry cost to date was 18 cents. We are unable to determinethe basis on whichMr Kaul made the offer to CNPC or its agent.

Evaluation of Cue's poor share price – From listing to October 1996

Having been asked by the Cue Board at the 11 October meeting (tendered document CU385­389) to inquire into the poorperformance of Cue's shareprice, Mr Jacobs requested feedback from various brokers, institutional investors and individuals. These included ANZSecurities, Wilson HTM, NationalMutual, and Global Portfolio, a shareholder of Cue (Commission Document CU124A]).

The response Mr Jacobs received was summarised in a memo to the directors of Cue dated 20 November 1996. This wasincluded in the Board papersfor this meeting.

The memo stated as follows:­

"At the last Board meeting Mr Philip Hatton requested an inquiry as to why the Cue share price is languishing despite other"smaller" oil company'ssuccess.

Five individuals (Nick Filipovic – National Mutual, David Cleary – Wilson HTM, Robert Aird – Epic Securities, Andrew Ristrom– ANZ Securities andRaydn Nolan – Global Portfolios) were written inviting a response (copy of letter attached).

Two constructive, comprehensive responses were received. I have attached David Cleary's response in full and have almostverbatim summarised NickFilipovic's phone response.

Nick Filipovic

Share price of any company relates to three issues:

1 Board and Management, 2. Portfolio of assets and 3. Financial resources of the Company.

Cue Energy has a problem with all three critical issues.

Last point first

The perception is that Cue is in an extremely tight working capital situation. The anticipation is that capital will need to beraised to get to first oil,making investment for new shareholders unattractive.

Furthermore, in contrast with the working capital the Company has a strategy of growth by acquisition which soundsunrealistic without money and with alow share price.

Second point

The investment in PNG is attractive but small.

The perception out there is that Yolla is dead, certainly a long way off, totally discounted.

first point

Management is extremely limited by the financial capacity of the Company.

The Board needs to have a long term perspective. It is now dominated by directors representing major shareholders, 3 out of5. It needs to berestructured; at least two independent non executive directors are required, one of which should be Chairman. It would beideal that directors have oiland gas experience and/or are known to the investment community.

Rothschild

Rothschild has an investment fund (Five Arrows Funds). They decided not to participate in the MIMPEX placement due to thefact that the absoluteshare price was less than $0.50/share and the Company's capitalisation was too small.

Conclusions

There seems to be a lot of different excuses put forward why people are not investing in Cue Shares, most are issues wecannot do a great deal about.

The most consistent comments are that the Company is too small for institutional investors and the Board is not up toscratch".

A copy of Mr Jacobs's memo taken from the Board paper (Commission Document 124B) will be tendered as documentCU407 to CU408.

Mr Cleary's response letter was also included in the Cue Board paper for the 29 November 1996 meeting. Mr Cleary'sresponse was as follows:­

"With regard to your letter of 15 October, 1996 we offer the following comments:­

1. Institutional Feedback

Some comments from individual fund managers are as follows:­

· There are no exploration wells in the short term so there will be no short term excitement in share price.· The market capitalisation of the company is too small to have any meaningful impact.· The company has limited financial capacity to fund its share of the Gobe project – will there be anything left for ordinaryshareholders after thefinanciers get their share of the cake?· The company has a credibility problem:­(a) During the fundraising last year it indicated strong support from National Mutual who subsequently sold their stock.

(b) The company indicated that the Yolla project would advance quickly; nothing has happened since last year.

· The board needs to be strengthened; there has been no replacement for John Mumford; there is a need for goodindependent board memberswith industry experience.· The MIM acquisition proposal was not presented well – there was too much of a "trust me" approach.2. Additional Comments

With regard to the above comments, we understand that the company is addressing the board structure. We would suggestthat the company should belooking to appoint somebody who has relevant industry experience and is someone who the institutions will have a highregard for.

We agree with you that the fundamental value of the company is not reflected in the current share price, however, we areconfident that the recentsuccess of Orogen and Oil Search will ultimately flow on to Cue and that perhaps the spudding of the Makas well will be atrigger of this interest. We arecurrently preparing an updated research note on the company which might hopefully help to get this message into the market.

We think it is an appropriate time for the company to be making contact with other brokers to ensure that the understanding ofCue's prospects andfinancial situation are clearly understood.

We hope these comments are of some value in helping you to understand the current market situation. Please feel free to giveme a call if you needfurther clarification".

A copy of Mr Cleary's response taken from the Board paper (Commission Document 124B) will be tendered as DocumentsCU409 to CU410.

Mr Albers also considered the issue of the languishing price of Cue Energy. Mr Albers comments in respect of Cue's shareprice was as follows:­

"WHY DOES CUE SHARE PRICE LANGUISH?

A Canadian reference to some rule of thumb concepts (the 4 "P"s) for assessing exploration companies which I recently readmay help us with thegeneral parameters. They are:

1. PeopleHow well qualified are the people to deliver the business plan, are they respected in the industry, do they have integrity, dothey have the relevantexperience?

2. ProjectsDoes the projects have potential for the discovery of targets that will attract widespread attention if discovered?

3. PriceWhat is the market capitalisation of the company compared with its value? It is expensive or cheap? Is there a lot of upsidepotential if a discovery ismade? What is the downside risk?

4. PromotionDoes the company have the ability to tell its story in a way that will attract attention from the market?

My personal opinion is that we are extremely weak on points 2 and 4.

Point 1 – People We are principally a technical company with unquestioned talent. However, our technical strengths arehidden and our promotionalstrengths are near to unborn.

We have a situation where we are about to push out a director who is a "promoter of the Company.

It is outward enthusiasm, excitement, drive and initiative that the perceptions of others are built around when assessing ourCompany. It is some of

these issues, plus more, that we as a company could do well to focus on to enable us to successfully re­group for whatever isour future direction".

"Projects: Do we have projects that attract sufficient attention? Yolla has been "old hat", with development in the "nevernever" category. Ourinterest in SE Gobe Unit is too tiny to catch attention.

Our strategy was to grow to a $100 – 200 million company through acquisitions within two years. We commenced this strategyin February 1994. Wewill soon enter the fourth year of this strategy. I pose the question "has the strategy had its day?" "Have time and eventspassed us by?" Are the vitalingredients of low oil price and little demand for oil properties now things of the past?" Share prices for existing companieswith attractive production arefar in excess of the prices which we could achieve to issue new securities by a relative newcomer (see Andrew Adams report).

The table attached demonstrates how damaging to shareholder value has been to the acquisitions strategy to date.

I believe that we need to refocus so that we broaden our horizons to become more entrepreneurial and more responsive toour shareholders needs(which are of course the very things that will enable us to grow the Company.

Do others in the industry see us as "movers and shakers" in the development of new projects?

Promotion: Our promotion is very limited. We have alienated our original support base and have not been able to recapturethem or replacethem".

A copy of Mr Albers memorandum is found in Commission Document 124B and will be tendered as Document CU411toCU413.

The minutes of the Cue meeting for which the Board of Cue considered the share price of Cue record that Mr Kaul waspresent and therefore theinformation and observations were clearly made known to Mr Kaul. The self­analysis of Cue certainly revealed that theCompany was questioning its owncorporate strategy. The NPF Board Papers and Board Minutes however suggest that Mr Kaul did not highlight these issuesexplicitly to the Board nor werethe implications for NPF's investment considered formally by the Board of Trustees.

On 9 December 1996, NPF Board had its 104th Meeting. Mr Kaul's report in the Board paper showed that Mr Kaul appearedto believe that Cue was still agood investment in the long run. A copy of the extract of Mr Kaul's report as found in the Board Paper (CommissionDocument 17) will be tenderedas document CU414.

"9. Cue Energy NL.

The investment in Cue Energy remains subdued below the fund's entry price of 20 cents. However the last two working daysof November has seen 2.5and 1.3 cents gain on the shares and option respectively fuel by the news of the Tasmanian government announcement of thecontinuation andexpansion of the Savage River steel production and therefore need for gas power generation.

Cue Energy has 14% in the Yolla gas field and 50% in a JV with Asia Brown Boveri (ABB) which had made a proposal for$120 million refurbishment of he Bell Bay power station.

Southeast Gobe remains a problem and Chevron, Landowners and government were to discuss the issues at Gobe on the 1­2nd December. Outcomeyet not known, and I will find out before the meeting.

Cue has other potential tenements in PPL189/190, the upper and lower fold of the former PPL 56, and oil and gas potentialare still very likely.

I, therefore, believe Cue is still a good investment in the long run".

The minutes record that NPF should, where possible, push this investment along. The Board resolved that NPF shouldcontinue to buy up to 3% every sixmonths to increase its holding in Cue, subject to the necessary Ministerial approval and consent.

"6.8 Cue Energy NL.

It was noted that although the share price has gone up recently due to the Tasmanian government's announcement relating tothe continuation andextension of certain projects, NPF should, where possible, push this investment along. It was resolved that NPF shouldcontinue to buy up to 3% everysix months to increase its holding in Cue, subject to the necessary Ministerial approval and consent".

The relevant extract of the minute found in Commission Document 48 will be tendered as Document CU415.

Advice on Takeover Provisions

In early December 1996, Mr Wright had sought advice from Mr Ben Semos on the implications of the take­over provisions ifNPF wished to purchase furthershares (Commission Document 124B / to be tendered Document 416­417. A Mr Connolly of Wilson HTM replied to MrWright on 3 December 1996. Mr Connolly stated

"I am not a New Zealand lawyer and I know very little about New Zealand law. We obtained verbal advice from our lawyersseveral months ago in relationto the general provisions of the take­overs provisions under New Zealand Company Law. The advice we received was broadand conceptual, nottransaction specific. If you have a concern about a specific transaction you should obtain specific advice"

It would also seem from Commission Document 124B that another opinion was sought by Cue's Mr Knox from a firm of NewZealand solicitors,Bell Bully. The request specifically made reference to NPF wishing to increase their ownership in Cue Energy above 20%. MrCharles Bolt of Bell Gullyresponded on 5 December 1996. The advice indicated that there were no restrictions on NPF. However, Mr Bolt stated thatunder New Zealand StockExchange ("NZSE") Listing Rules, it was more likely that a bid by NPF would be classified as a "restricted transfer" transpiringfrom an "Insider" position.Accordingly a notice of the change must be made to the NZSE 15 days before the bidder and the transferee(s) became boundby the transaction.

A full copy of the Bell Gully advice is found in Commission Document 124 will be tendered as Documents CU418 toCU433.

The inference may be drawn that the advice was specifically sought in anticipation of NPF's continued investment push intoCue as resolved by the Boardat the 9 December 1996 meeting of NPF Board of Trustees.

Table of Cue purchases ­ 1997

NPF Purchase of 8 million ordinary shares of Cue– 17 May 1997

Background to Cue's interest in opportunities in Indonesia

Having received the Board's continued support of the company's corporate strategy of growth by acquisition, at the Cue BoardMeeting of 29 November1996, Mr Jacobs in association with ANZ Corporate Services considered other opportunities in Indonesia (CommissionDocument 124A/ to betendered Document CU434 culminating in a proposal made to an Indonesian entity, P T Wirabuana Prajamya for a jointProduction sharing Contract("PSC") application to Pertamina (the Indonesian State Oil Company) for the Tanjung Jabung Block, Indonesia (an oil and gasexploration area in Indonesia).

According to information presented to the Board of Cue (Commission Document 124B) PT Wirabuana is a business arm ofthe Foundation of the ArmedServices of the Republic of Indonesia called Yayasan. The background information provided to Mr Kaul on Yayasan andPertamina is found inCommission Document 124B and will be tendered as Documents CU435­437.

The proposal would give Cue Energy 40% of the PSC with consideration to PT Wirabuana Prajaraya of US$2.1 million. CueEnergy and PT Wirabuanawould be the joint operator and Cue Energy would provide most of the technical expertise. The proposal dated on 24 January1997 was agreed by PTWarabuana. A copy of the signed proposal taken from Commission Document 124A will be tendered as DocumentsCU438­441.

A draft of the proposal was sent to the Cue Energy directors for their comments in a fax dated 23 January 1997 including MrKaul. The fax indicated thatCue were looking to raise A$6.8 million at 20 cents per share and it was suggested by Mr Jacobs that NPF would underwrite20% of the new issue withANZ securities underwriting 80%. Based on the proposal this would have meant that NPF were being requested to underwriteUS$1.36 million. A copy ofthis fax can be found in Commission Document 124A and will tendered as document CU442­447.

On Friday 31 January 1997, a draft­underwriting letter was faxed to Mr Kaul. The total funds to be raised from this issue hadincreased by A$0.2 millionper the draft underwriting agreement. The conditions precedent required NPF to agree to sub­underwrite 20% of the totalplacement. A copy of the draftunderwriting agreement letter from Commission Document 124C will be tendered as document CU448­451.

Appointment of Mr Copland as an independent director

We note from a circular resolution of the Cue Board dated 31 January 1997 that Mr Copland was appointed as anindependent director of Cue(Commission Document 124A / to be tendered Document 452­453). Mr Copland was formally advised in a letter dated 31January 1997 as follows:­

"Dear David

We understand that you are prepared to act as a director of Cue Energy Resources NL (incorporated in New Zealand). OurNomination Committee hasresolved to invite you to join the board to fill the casual vacancy left by the resignation of Mr John Mumford who has joined theboard of Tap Oil NL astheir Chairman.

The invitation is on the basis that you do so as an independent director and not as a representative, either informal orotherwise, of the NationalProvident Fund. This stipulation is made as a result of the guidelines set down for the appointment of new directors to ourNominations Committee,which is to avoid over representation by major shareholders and to encourage independent directors. We are very cognisantand appreciative of NPF'ssupport, so this requirement should not be seen as ungracious, but as a result of the high standards of corporate governancethat we are seeking toattain.

We hope you can join us and look forward to having you at our meeting on Wednesday 5th February 1997. Andrew Knox willattend to paper workformalities with you on the 5th.

The resolution appointing Mr Copland states the following:­

"Resolved to invite David Copland to join the Board of Directors as a replacement for John Mumford on the basis that he canaccept appointment as anindependent director and not as a representative, either formal or otherwise, of National Provident Fund of Papua NewGuinea. Signed as a resolution ofDirectors of the Company effective 31 January 1997"

The resolution was signed by five of the directors of Cue ­ EG Albers; FA Jacobs; CR Hart; R. Kaul; P Hatton.

The selection criteria set by the audit and remuneration committee for appointing replacement director to the Board of Cuewere stated as being :­

­ Shareholder directors to be avoided­ Independent­ Extensive oil and gas experience preferably­ Entrepreneurial skillsThe appointment of Mr Copland as an independent director could not be said to be a logical choice as an independent directoror non­representative of a

major shareholder where Mr Copland was the Chairman and Trustee of the National Provident Fund of Papua New Guinea.Mr Copland could not be saidto be independent in the ordinary meaning of the word and would also be seen as "representative" of a major shareholder.

The minutes of Cue record that the company held a Board Meeting on 5 February 1997 and that Mr Kaul was in attendance.The minutes record thatMr Jacobs informed the board that PT Wirabuana Prajamya had won the bid for the PSC. The relevant extract of the meetingminute taken fromCommission Document 124B will be tendered as document CU455.

On 7 February 1997 a circular resolution of the Cue directors to approve the issue of 40 million fully paid ordinary shares at 20cents per share was faxedto Mr Kaul by Mr Jacobs. Mr Kaul, as far as we can determine from the Board minutes (Commission Document 48) andrelevant Board Papers(Commission Document 18 and 19) did not inform the Board of the existence of the board resolution. Mr Kaul did not seekdirection from the board ofTrustees and so did not obtain the formal authority to approve the issue of 40,000,000 shares. A copy of the signed circularresolution taken fromCommission Document 124C will be tendered as document CU456­457.

NPF Investment appraisal and Board approval

On 11 February 1997 Mr Kaul requested by circular resolution approval for NPF to take up 20% of the A$8.0 million issue for a5% underwriting fee. Thecircular resolution (found in Commission Document 124A), to be tendered as document CU[ ] to CU[ ], was in most partsclearly a plagiarisedsummary of the benefits of the PSC as previously provided by Mr Jacobs.

"I urgently need all your approval for NPF to take up A$1.6 million Cue shares (20%) of an A$8.0 million rights issue to fundan exploration commitmentfor a 5% underwriting fee (A$80,000.00)"

The attached documents are self explanatory and which basically states:­

(a) The Project Sharing Contract (PSC) is with a reputable Indonesian Foundation (the Army)(b) It is in a main stream of prolific oil and gas exploration and production area of Indonesia(c) The PSC cost of acquisition is cheap at US$67,500 per percentage point compared to other Indonesian acquisitions (seeattachedcomparison).(d) There has been two discoveries of 24 million barrels and 100 million barrels in nearby PSC's (East Katilang PSC andMAKMUR/N.Geragirespectively).(e) Good beginning for Cue for the Indonesian market, being the regional objective of Cue.(f) With Crocodile being in Indonesia, our Joint Venture with the Army Foundation may be advantageous to Crocodile via Cue.(g) This would maintain our 20% in Cue. Cue is now trading above 23 cents due to rumours of Cue going to do business inIndonesia and theoption has traded at 9 cents.(h) The ANZ Securities underwriting is subject to NPF underwriting the above 20% and vice versa.Please sign your approval and fax it back to me".

It is our view that this brief to the trustees was deficient in that the proposed investment was significant and therefore Mr Kauland his investment teamshould have considered objectively the investment and included in the brief the following before requesting the Trustees'approval of participating in thisnew placement:­

The impact of increasing or maintaining NPF's shareholding in respect of NPF's investment portfolio and in relation tocompliance with theinvestment guidelines.A full review of underlying PSC documentation.Consider the ramifications of Cue not undertaking an independent technical appraisal of the Tanjung Jabung Block.Consideration of financial commitments associated with exploration of the Tanjung Jabung Block. An ASX release by Cuedated 20 February1997 (Commission Document 124C) which will be tendered as document CU458­460, stated that subsequent to an initialpayment ofUS$2.1 million to PT Wirabuana Prajaray, Cue would be required to contribute its share of the exploration work programme,which over a threeyear period was stated as being estimated at US$15.2 million. Cue's 40% would therefore be US$6.08 million.Input from the NPF's Investment division in the form of an objective analysis.Independent investment adviceConsideration of the ability of the company and management to manage a significant venture in IndonesiaManagement and Board capabilities to successfully achieve stated corporate objectives.Assessment of the continued benefits of retaining an interest in CueConsideration of the criticisms levelled at Cue and the Cue Board as highlighted to Mr Kaul in tendered documents

CU407­413Future capital requirements of the companyAssessment of the risks of investments versus capital growth and income streams.Whilst Mr Kaul reported in the Board papers (Commission Document 18 to be tendered as document CU461) for the 27February 1997 NPF Boardof Trustees meeting that he had received a quorum of responses from the Trustees approving the subscription, we are unableto locate theresponses received from the Trustees. Mr Kaul's report stated:­

"2. Cue Energy NL

Over the last two months it has been a relief to see the share price of Cue to be trading at above 20 cents and the options at 9cents plus. The increasein the price is attribute to the Moran wells and rumours of Cue going to do business in Indonesia.

Cue is indeed going to do business in Indonesia under a Project Sharing Contract with PT Wirabuana Petrolindo for 40%ownership. The TaijungJabung tenement would basically be the exploration acreage for Cue in very oil and gas prolific areas of Sumatra in Indonesia.

Cue is now in the process of raising A$8.0 million to be underwritten by ANZ subject to NPF taking up A$1.6 million (20%) fora 5% percent fee. Thebenefit to NPF is as I have outlined in my letter to directors on 11th February. I have received a quorum response fromdirectors, and therefore havecommitted NPF to the subscription, subject to Ministerial approval. I request the Board to formally ratify this decision".

The minutes record of the 105th meeting in respect of Cue states:

"52. Cue Energy NL

It was noted that this investment is looking good. The Managing Director informed the Board of having received a quorum ofvotes in favour of hiscircular proposal of the 11th of February1997 for NPF to take up AUD$1.6million for a 5% fee. It was resolved to ratify thecircular resolution on thissubscription commitment.

The deficiencies in information provided to the Trustees was further compounded by the fact that the Trustees were requestedto make a materialinvestment decision without been availed of the opportunity to properly discuss and debate on the transaction in a properlyassembled meeting of theTrustees.

As far as we can determine from the Board Papers prepared for the 105th NPF Board of Trustee meeting (CommissionDocument 18) and the minutesof that Board Meeting Mr Kaul did not.

Seek the directions of the Trustees when exercising NPF's voting rights as a shareholder of Cue.Disclose the fact that he had voted as NPF representative in respect of the shareholder resolutionsaccording to the minutes neither Mr Kaul nor Mr Copland, disclosed the fact that Mr Copland had been elected as adirector at the meeting, andconsequently no disclosure was made concerning Mr Copland's independence or otherwise.This being the case, Mr Kaul :

­ Could not be said to act in good faith where Mr Kaul did not keep the Board of Trustees abreast of relevant and materialinformation in respect ofits investment in Cue.­ Acted beyond his delegated powers and consequently his actions could be said to be improper.­ Failed to properly discharge his responsibilities as Managing Director.Mr Copland according to the minute record of the Board Meetings did not:

­ Disclose to the Board the fact that he had been elected to the Board of Cue and that this was as an independent director.­ Disclose the existence of a resolution of the Cue board to award him 200,000 options (under a Cue Company Share OptionsIncentive Plan) overordinary fully paid shares of no par value exercisable at the greater of market price or AUD 23 cents at any time between 1April 1998 and 31March 2002 (Commission Document 124C / tendered Documents CU462­474.This being the case, Mr Copland:

­ Could not be said to act in good faith where Mr Copland did not disclose the existence of a conflict of interest where he held"an independent"directorship, was to be awarded options in Cue, was a trustee of the NPF, and then also did not declare this interest andabstain from the Boardresolutions to ratify the subscription commitment made by Mr Kaul to underwrite A$1.6 million of forthcoming Cue placementof A$8 million equityshares.­ His actions could judging by the facts available be said to be improper and in breach of his fiduciary duties as a trustee.As we have already elaborated upon in earlier hearings where trustees have committed a breach of trust it is likely that there

may be personalliability issues.

A fax dated 13 February 1997 from Mr Kaul to Mr Jacobs advised the NPF Board had agreed to underwrite A$1.6 million ofCue Energy's proposedA$8.0 million for a 5% fee. A copy of Mr Kaul's fax taken from Commission Document 124C will be tendered as documentCU475.

On the same day ANZ Securities sent a fax to Mr Kaul with the letter of offer for subscription of the new share issues. Theoffer letter requestedconfirmation of acceptance and stated that subscriptions were required by 21 April 1997. A copy of the letter of offer forsubscription taken fromCommission Document 124C will be tendered as Documents CU476 to CU482.

On 25 February 1997, Mr Jacobs circulated by fax a "notice to shareholders and other holders of quoted equity securities of aspecial meeting of thedirectors of Cue to be held on 25 March 1997. Among the eight specific resolutions sought from the shareholders of Cue atthe special shareholders'meeting were three specifically material to NPF.

appointment of Mr Copland as a director (resolution 1)authorisation for the directors of Cue to issue 40 million ordinary shares at 20 cents per share (resolution 2)authorisation of grant by Cue of 200,000 options over ordinary fully paid shares of no par value exercisable at AUD 23cents to Mr Copland(resolution 6)A copy of the notice taken from Commission Document 124C will be tendered as Documents CU462­474.

By the very fact that the resolutions required the approval of the shareholders, all 8 resolutions sought were material andsignificant to the owners of Cue.Clearly the proper procedure in the absence of specific delegations would have been for Mr Kaul to seek directions fromNPF's Board of Trustees on howto vote on the issues. We note from a proxy form found in Commission Document 124C that, on the same day the fax wasreceived Mr Kaul signedand stamped the NPF Corporate seal on the proxy form and faxed it to Cue. Mr Kaul indicated on the proxy in favour of alleight resolutions, which were asfollows:­

1. To elect Mr Copland as director2. To approve an Issue of Shares3. To amend the Share Option Incentive Plan4. To authorise Options to FA Jacobs5. To authorise Options to PCR Hatton6. To authorise Options to D Copland7. To approve transaction with CR Hatton8. To increase Director fees A copy of the proxy form taken from Commission Document 124C will be tendered as document CU483.

Two days after Mr Kaul had sent the proxy, 27 February 1997, the NPF Board of Trustees 105th Board meeting was held. MrCopland was the Chairmanof this meeting as we have stated neither Mr Copland nor Mr Kaul disclosed the existence of the special Cue shareholders'meeting notice to the Trustees. Neither the minutes nor the Board report contained the notice or any reference to the notice.

Having sought the Board of Trustees approval to subscribe to 20% of the A$8 million placement, on 28 February 1997 a fax toMr Ristorm under the nameof Mr Kaul stated:

"This is to inform you that NPF will definitely take up 20% (8 million shares for A$1.6 million) of the Cue Energy NL placement.

The NPF Board of Directors were further pleased with your confirmation yesterday that NPF will receive a 5.0% (A$80,000.00)for sub underwriting the20%.

I will fill the necessary application forms for shares and send it down next week."

A copy of the fax taken from Commission Document 124C is tendered as document CU484.

The Cue special shareholders' meeting was held on 8 April 1997 in Wellington, New Zealand. The shareholders votedunanimously for all 8 resolutions. Adraft copy of the minutes taken from Commission Document 124B is tendered as Documents CU485­489.

Ministerial approval

NPF's decision to sub­underwrite A$1.6 million of Cue's A$8 million placement of shares involved the potential contractualobligations of A$1.52 million(being A$1.6 million less 5% underwriting fee), and therefore as this was in excess of K500,000, the Public Finance(Management) Act required that NPFobtain Ministerial Approval under Section 61 of the PFMA.

From an inspection of the Department of Finance files (Commission Document 5A to 5D) submitted to the Commission, wehave located inCommission Document 5C a copy of the same circular management paper to the Trustees dated 11 February 1997concerning the A$8 million Cueplacement can be found in (tendered document CU490) addressed to Mr Vele Iamo.

The markings on the copy of the circular indicate that Mr Iamo received the circular on 3 March 1997 and the CommercialInvestment Division received thecircular on the 4 March 1997.

The files obtained from the Department of Finance do not contain any other correspondence, and therefore at this stage wehave been unable to establishwhat advice was given to the Minister, if any. The then Minister, the Hon Chris Haiveta, MP gave approval on 3 April 1997 forNPF to purchase the 8 millionshares in Cue at A$1.6 million. Mr Haiveta's letter states that the reply was given in response to Mr Kaul's letter of the samedate. To date we have beenunable to locate Mr Kaul's letter requesting Ministerial approval. A copy of the Minister's letter is found in CommissionDocument 124C and will betendered as documents CU491.

Prima facie, it would appear that Mr Haiveta provided approval for this investment without formal advice from the DoF. Inaddition NPF it would seembreached the PFMA S61(2) where Mr Kaul committed NPF to underwrite A$1.6 million in respect of the Cue A$8 millionplacement. PFMA 61(2) requires thatNPF obtain the approval of the Minister of Finance before it "enter(s) into a contract involving the payment or receipt of anamount, or of property to a value(or both) exceeding –(a) K100,000; or(b) In the case of a public body declared by the Head of State, acting on advice, by notice in the National Gazette, to be apublic body to whichthis paragraph applies – K500,000."In the case of NPF, the amount was K500,000.

NPF Purchase of 21,739,131 million shares in Cue ­ SAGA– 30 June 1997

Background to transaction

Subsequent to the A$40 million share issue in May 1997, Cue embarked upon a further capital raising exercise by way ofshare issue of 109,289,782ordinary shares to raise [A$25 million] in June 1997. With regard to this share issue, in June 1997, NPF participated by thepurchase of 21,739,131 at acost of A$5,000,000. This was NPF's single largest purchase in Cue up to this point.

The share placement according to an Information Memorandum found in Commission Document 124A was for the purposeof financing the purchaseof exploration assets in Indonesia. These interests were to be acquired from a Norwegian multinational oil and explorationcompany called Saga PetroleumASA ("SAGA"). SAGA's assets included a 50% stake in an Oil Production Sharing Contract ("PSC") off the cost of Indonesia,in an area known as theJambi Merang Block (Jambi Merang) and a 30% stake in the Natuna Sea close to the intersection of the borders betweenIndonesia, Malaysia and Vietnam,known as the North West Natula Sea Block II.. The other 50% in Jambi Merang was owned by the Indonesian state owned oilcompany, Pertamina.

Cue's Board decision to acquire SAGA's Indonesian Assets

The proposal to acquire SAGA's interests in Indonesia was first presented to Cue Board at the 7 March 1997 meeting by MrJacobs. The 7 March CueBoard meeting was also Mr Copland's first meeting. The relevant extract of the minutes taken from Commission Document124B will be tendered asDocuments CU492­493.

On 4 April 1997, Mr Jacobs provided a draft of an executive summary of Cue's Valuation and Purchase Proposal for SAGA'sIndonesian assets togetherwith a draft of a bid letter which was to be placed with Robert Fleming & Co Limited ("Robert Fleming") of London, the agentshandling the sale for SAGA,on 11 April 1997. Mr Jacobs invited comments from the directors. The covering fax to the directors listed Mr Kaul and Mr

Copland as intended recipients. A copy of these documents taken from Commission Document 124A will be tendered as Documents CU494­507.

A full copy of the final Cue valuation and purchase proposal of SAGA's Indonesian assets was provided to the Cue directorsfor their review anddiscussion on 7 April 1997. A copy of full internal valuation taken from Commission Document 124A will be tendered asDocuments CU508­543.

A review of the proposal indicates that it was the intention of Cue to make a bid of US$15 million for SAGA's portfolio ofIndonesia assets, with additionalpayments of US$15 million contingent on the signing of commercial gas supply contracts.

According to the proposal document, the Jambi Merang Block contains the Gelam gas field and Pulau Gading gas field. TheGelam gas field of which SAGAowned a 14% unitised interest was at that time developed by Asamera and production was expected in October 1998. PulauGading gas field wasundeveloped and development could at that time, be only for local power generation to supply the city of Jambi. The proposalstates that "risk to develop afull gas fired power project remains high".

It is noted that on page three of the proposal that Cue intended the acquisition was to be financed through the raising of A$7.5million through issue ofshares at 25 cents per share and A$12 million on interim financing. Reviewing the proposal, it appears from the briefeconomic valuation (tendereddocument CU526 to CU528) that the proposal required immediate and substantial capital outflows.

A fax found in Commission Document 124A indicates that Mr Kaul signed a Cue circular resolution faxed to him on the 9April 1997 confirming hisapproval of the proposed offer for SAGA's Indonesian assets as outlined in a draft offer dated 10 April 1997 (tendereddocument CU504­506). A copyof the resolution is found in Commission Document 124A and will be tendered as document CU544­545. A review ofNPF's Board minutes andBoard Papers suggests in the absence of mention of the matter that Mr Kaul gave his approval for the SAGA transactionwithout seeking instructions fromthe NPF Board. It would be our view, that in the absence of seeking guidance and advice, Mr Kaul was remiss in his duties asNPF's representative. TheSAGA transaction was clearly a material event relevant to NPF's investment in Cue as will be seen.

Cue's due diligence / negotiations to acquire SAGA's assets

The offer to purchase SAGA's assets in Indonesia was formerly delivered to Robert Fleming on 10 April 1997. (CommissionDocument 124B). Mr Grayof Robert Fleming replied to the bid letter in a letter dated 15 April 1997 (Commission Document 124A), to be tendered asDocument CU546 whichstated:­

"…as stated in the Information Memorandum, Saga has decided to withdraw from Indonesia and a number of offers havebeen received which wouldallow Saga to do so without maintaining any residual interest or monitoring requirement. Whilst the total headlineconsideration offered by Cue ofUS$30 million is amongst the leading offers received, the structure of your Offer is unacceptable. In light of this you may wishto re­submit an Offer inaccordance with the terms outlined in the Information Memorandum…".

On 18 April 1997, Mr Jacobs responded to Mr Gray's letter. The letter stated as follows:­

"Last night I attempted to contact you to discuss your letter dated April 15, 1997. Our interpretation of your letter is that theconditionality and delay of partof the Consideration is what makes Cue Energy's offer less attractive than other offers received. Presuming this is correct weoffer the following for your consideration:

As you might appreciate the total Consideration offered is largely a matter of a risk assessment of the likelihood of theestablishment of a gas firedelectricity generating project for Palau Gading. Within the extremely limited time available this was impossible to properlyassess.

We did have a quick meeting with Kvaerner, organised and attended by Knut Aanstad, but that was insufficient to avoid heavydiscounting of the value ofPulau Gading.

As a result we believe Cue Energy has offered an elegant and fairer solution for both the Vendor and the Buyer, with bothbenefiting from the project if itproceeds and offering some protection to Cue Energy if it does not.

We appreciate it would be preferable for SAGA to have no residual financial interest or ongoing monitoring requirements but inthe end the totalConsideration offered by Cue Energy should be the overriding factor. The cost to SAGA. associated with "keeping an eye" onthe future appraisal anddevelopment of Pulau Gading field are trivial in the context of our offer.

But to entirely avoid a cost and management burden to SAGA, Cue Energy is prepared to write into the Sales and PurchaseAgreements that monitoringwill be carried out by an independent consultant of SAGA's choice with costs being carried by Cue Energy.

Before Cue Energy can further consider its position I would like to discuss the issues with you tonight on the phone or, ifwarranted, I can be in Londonby Monday morning".

It should be noted that judging by Cue's board minutes, and correspondence reviewed between Cue and Mr Kaul, it wouldappear that Cue did not seekany independent advice or undertaken any substantial due diligence in respect of SAGA's Indonesia assets. The existence ofa tight deadline and lateaccess to SAGA's data room was clearly a factor however it would be reasonable to expect that where this position wasknown:­

­ This fact should have been drawn to the attention of the NPF Board of Trustees by either Mr Kaul or the NPF InvestmentDivision.­ The lack of an independent technical assessment or due diligence was a material fact.Mr Jacobs advised the directors of Cue on 21 April 1997 of SAGA's position..

"Gentlemen,

Attached is an exchange of letters with Flemings with regard to Cue Energy's bid for the Indonesian assets of SAGAPetroleum.

I have since spoken to Flemings to clarify the response and, as expected, what is unacceptable about our offer is theconditional, delayed nature of halfthe Consideration. They want to know what our bid is on a cash basis providing a clean exit for SAGA, stipulated as arequirement in their information memorandum.

The offer to fly to London and negotiate has been turned down. If we don't provide a revised offer I believe we will be out ofthe running.

The Pulau Gading was discovery has been valued at US$30 million in our internal valuation report of which you all have acopy. Cue Energy has offeredUS$3 million cash and US$15 million in deferred payments for this property. (The other US$12 million cash was for the Gelamgas field).

Whilst it would have been nice to put all of the marketing risk of Pulau Gading back to SAGA it looks like we need to take onsome of that risk ourselves.

Attached is the consolidated Cue Energy cashflow with Pulau Gading in the forecast (lines 206 and 207).

As can be seen the project is large and obviously will have a major impact on the Company. We have only focussed on theshort term financing of thisacquisition as I am sure the Company performance in the medium to long term will be very good.

A cash offer of US$18.5 million (shown as A$25 million inclusive of costs in line 303) leads to the requirement of A$15 millionin equity (up from $7.5million) (line 304), assuming the convertible note (or interim financing) remains at A$12 million (line 305). The doubling of theequity requirement,which seems disproportionate to the increase in the bid price, is caused by the fact that the A$7.5 million equity was alwaysgoing to be very tight andthe requirement for A$1.5 million in appraisal drilling (line 207).

I seek your approval to amend our offer for SAGA's Indonesian assets to US$18.5 million cash up from US$15 million. Ipropose to leave the deferredpayments in place as a further inducement for the time being.

If our bid is accepted, and prior to completion, more work will be done on assessing the electricity/gas market in the Jambiregion.

We need to get to the negotiating table, play the game, and adjust the Consideration (downward if possible) as we go along.The offer remainsconditional and can be fully discussed at the next Board meeting before we incur irrevocable commitments.

I am travelling to Jakarta tomorrow for the signing of the PSC on Tanjung Jabung later this week".

A copy of Mr Jacobs fax is found in Commission Document 124A and will be tendered as document CU549­551.

On 22 April 1997 Mr Jacobs faxed a revised letter of offer for SAGA's Indonesian assets (Commission Document 124A to betendered as documentCU552­557, to Mr Kaul. Mr Jacobs stated that following discussion with Mr Albers and another Cue director, Mr Philip Hatton,they had agreed to submit acash bid of US$25 million, not US$18.5 million as previously advised. The reason was stated as follows:­

"Dear Robert,

Re: Bid for SAGA's Indonesian Assets

The signing of the Tanjung Jabung PSC in Jakarta is not taking place until next week and I decided to delay my trip

This morning I have discussed the bid for the SAGA assets with Geoffrey and Philip and we agreed we would like to submit acash bid of US$25 million,not the US$18.5 million I discussed with you yesterday, and see what happens. The offer is attached.

The reason of the change is that we feel that the market would re­rate Cue Energy's share price if we are successful with theacquisition and that equitycould be placed at say $0.30/share rather than the $0.25/share that we have used in the financial projections

The deal could transform the whole Company and we decided it was worth putting a high conditional bid on the table.

If you are supportive we will go ahead and make the bid. If the bid is of interest to SAGA a full presentation will be made toCue's Board on 7 March 1997.

I am sorry about this late change of mind but it is the best thing we can do at this point in time.

Give me a call at your convenience".

On 28 April 1997, during negotiations to conclude the deal, Mr Jacobs corresponded with Mr Kaul and informed Mr Kaul of ameeting with ANZ CorporateServices to discuss underwriting the A$21 million. It appears from the correspondence that ANZ Corporate Services wereprepared to underwriteA$11 million if NPF underwrote A$4.2 million (20% of the new issues) for a commission of 5% and NPF also sub­underwroteA$5.8 million for a commissionof 4%. (Commission Document124A).

Amongst other things, the fax from Mr Jacobs included a draft letter clearly intended by Mr Jacobs to be sent by Mr Kaul toSAGA's London agents RobertFleming, largely for the purpose of assuring SAGA that Cue was serious about its bid for Jambi Merang and had the backingof its largest shareholder,NPF.

One matter of note concerns the fact that the draft letter and the letter actually sent states " The NPF is represented by myselfand Mr David Copland,the Chairman of NPF, on the Board of Cue…". The letter was signed by Mr Wright on Mr Kaul's behalf and sent on letterheadnotepaper on the same day.The letter is contradictory of the letter of appointment of Mr Copland dated 31 January 1997 (tendered document CU454) inthat it apparently suggeststhat Mr Wright and NPF considered Mr Copland as representing NPF. It also is potentially relevant that this letter was draftedby Cue's Mr Jacobs. A copyof Mr Jacobs's fax of 28 April 1997 is found in Commission Document 124A and will be tendered as document CU558­562. The letter of supportfrom NPF sent to Robert Fleming is also in Commission document 124A and will be tendered as document CU563.

On 28 April 1997 we note from a fax found in Commission Document 124A that Mr Jacobs sent a fax marked for theattention of Mr Kaul and Mr Wrightof NPF concerning NPF's underwriting position.

The fax reads as follows:­

"Dear Robert/Noel

I spoke to David Copland but was unable to advance my arguments for sub­underwriting the additional $5.8 million.

May I ask you to put forward at the NPF Board meeting that NPF take up:

1. A firm position of $4.2 million with 5% commission2. A sub­underwriting position of $5.8 million, or any other amount, with a commission of 3% and that NPF's sub­underwritingposition be relievedfirst in preference to ANZ's position.Note also that the funds for the SAGA transaction would not be required until July/August.

Thank you for your help"

This again could be construed as contradicting the view that Mr Copland was an independent director. It seems strange thatMr Jacobs would apparentlydiscuss with Mr Copland NPF's position with what would appear to be the intention to persuade NPF to sub­underwrite A$5.8

million of ANZ CorporateServices Limited's underwriting of A$21 million, where Mr Copland was an independent director. Mr Jacobs' and Mr Copland'sconduct could be considered asevidence of Mr Copland's non­independence and clearly underlines Mr Copland's conflict of interest.

A copy of the fax is found in Commission Document 124A and will be tendered as document CU564.

A fax under the name of Mr Jacobs dated 29 April 1997 addressed to Mr Kaul states:­

"Dear Robert,

Re: SAGA's Indonesian Assets

Rob Gray of Flemings informed me last night "not to go on a holiday for the next couple of weeks".

He thanked us for the offer and appreciated the work done by Cue Energy. He could not pre­empt SAGA's decision butFlemings is recommendingSAGA accept Cue's offer.

We expect confirmation of having won the bid over the next couple of days. It probably will mean that our bid needs to beunconditional by 7th May 1997. We have one week.

Further to my letter yesterday regarding NPF's underwriting position. If NPF is prepared to sub­underwrite $5.8 million, or alesser amount, it probablywould be worthwhile speaking to the other PNG institutions to gauge their interest in taking a shareholding position in CueEnergy. Any comfort fromthem would further reduce NPF's exposure.

If we have won this bid it would be an absolute tragedy if we couldn't complete. I know it is asking a lot but NPF's position inthis bid is absolutelycritical".

A copy of the fax is found in Commission Document 124A and will be tendered as document CU565­566.

On 2 May 1997, the directors of Cue were advised that during negotiations with Robert Fleming Cue's offer had beenincreased to US$27 million and thedeposit on execution of agreement had increased by US$1.5 million to US$2.5 million. A draft underwriting agreement withANZ Corporate Services wasalso included in the fax to Mr Kaul. The draft underwriting agreement indicates that the two conditions precedent to placementwere the agreement by NPFto underwrite 20% of the placement and agreement by Rothschild Australian Limited or another party to provide debt of A$14million. A copy ofMr Jacobs's fax in Commission Document 124A will be tendered as document CU567­575.

NPF's investment appraisal and board deliberations concerning the further investment in Cue

At the 106th NPF Board of Trustees meeting held on 5 May 1997 (Commission Document 49 to be tendered as DocumentsCU576­577), the Trusteeswere advised of Cue's request for NPF to sub­underwrite A$10 million of the A$21 million placement. Examination ofCommission Document 19 revealsthat the Board papers for this meeting did not include any briefing or background information on the SAGA acquisition. The fullminute in respect of Cuereads as follows:­

"10.4 Cue Energy Resources NL

The National Provident Fund Board of Trustees ("NPF") was informed that Cue Energy Resources NL ("Cue") has requestedNPF to sub­underwriteAUD$10 million of AUD$21 million new shares issue in Cue, being part of funds required for Cue's AUD$35 million bid for theassets of SagaCorporation in Indonesia, on the following terms:­

· NPF will receive a 5% fee of its firm sub­underwriting totalling AUD$7.0 million;· NPF will receive a 4% fee of its sub­underwriting of a further AUD$3.0 million;· ANZ Bank will sub­underwrite AUD$21 million;· Cue will raise the other AUD$14 million by way of a loan from Rothschilds, Australia;· The amount to be sub­underwritten by NPF will ensure that NPF maintains its current 20% holding in Cue;· ANZ Bank will clawback the amounts sub­underwritten by both NPF and ANZ Bank, proportionately should the shares issuebeover­subscribed.· Funds are required in about June or July;· Underwriting closes on Tuesday night.

· NPF does not at this stage have AUD$10 million, however, this may be available in June or July.Following discussion, it was resolved to approve the sub­underwriting on the terms set out above".

In relation to this board decision the following observations are made:­

the minutes make no mention of Mr Copland declaring his apparent "conflict" where he is appointed an independentdirector and has been grantedto this point in time 200,000 options in the ordinary shares of Cue.The minutes make no mention of the status of Cue's bid for SAGA.The minutes make no mention that NPF Management, and in particular the Investment Division had briefed or undertakenan investment appraisal.The minutes make no mention of the NPF trustees considering the underlying risks of what Cue was proposing, thebackground to the bid offer,where Cue's original offer was revised.The minutes make no mention of the NPF trustees sought independent investment advice in respect of this sub­underwriting / or the furtherinvestment in Cue.The minutes make no mention of the NPF trustees properly considered the implications for NPF's investment portfolioincluding:­­ Balance of portfolio, where investment was increasing NPF's already over­exposure to PNG resource stocks.The minutes do not record that Mr Kaul had informed the Board of the fact that Mr Kaul had voted on behalf of NPF in ashareholder resolutionconcerning the issue of new shares for the proposed acquisition of SAGA's Indonesian assets.The existence of a US$2.5 million deposit lodged with SAGA and the basis on which this would be refundable.The proposal would involve NPF taking a significant holding in Cue and therefore we would expect a consideration of thisissue.

Critical assessment of the business risks of Cue.

An assessment of management's capabilities, qualifications, background and assessment of the directors businessexperience and acumen.

Consideration of the likely investment returns as measured against the associated risks of the investment in question.

Consideration of the future funding requirements of Cue and the ability of Cue to raise such funds.

Clearly an investment in Cue, was a speculative investment and therefore this issue should have been considered.

At this point in time, if we examine Commission Document 19, which includes the Board Papers for the 5 May 1997 Board ofTrustee Meeting, we notethat NPF's investment portfolio was as follows:­

Sale and Purchase Agreement for SAGA's Indonesian assets / NPF representation to Robert Fleming, agent for SAGA

In a letter dated 5 May 1997, SAGA's advisers to the sale, Robert Fleming wrote to Cue concerning the draft Sale andPurchase Agreement. The full letterbears reading to assist understanding of the deal finally struck between the parties.

"Saga has now had the opportunity to review your mark­up of the SPA.

It appears that, rather than mark up the original SPA supplied, the SPA has been scanned and changed by both wordprocessor and manuscript. Certainchanges have not been highlighted. This is not helpful and I have been asked as to why this approach has been adopted.Saga lawyers have had toreview the whole document on a word by word basis.

There are a number of issues of detail in Cue's mark­up. However, a fundamental issue of principle is the operation of yourproposed Clause 4.5(a).This proposed clause seeks to make the Cue deposit refundable upon the agreement not becoming unconditional for anumber of reasons includingthose that you have sought to include of shareholder agreement and funding. This is in contradiction to the basis upon whichSaga agreed to moveahead with Cue i.e. Cue's confidence in its ability to fund and complete the transaction was to be reflected in the non­refundable deposit.

We have been asked by Saga to obtain replies to both this letter and to our letter of Friday, 2 May as soon as possibletogether with a confirmation boththat the non­refundable deposit principle is acceptable to Cue and also that the SPA will be signed and deposit paid forthwithand unconditionally and assoon as possible after the Cue Board Meeting on 7 May.

Having now spoken with you, we now understand that you will be signing your underwriting agreement tomorrow (Tuesday, 6May) and instructing yourlawyers to remove the offending clauses in your marked­up SPA. You further stated that you recognise that any failure byPertamina to approve Cue asoperator, or any other reason attributable to Cue whereby the transaction does not become unconditional, is a risk for Cuerather than Saga and that, insuch instance, the deposit remains with Saga.

We have requested Saga's lawyers to fax you their detail comments on your amendments to the SPA.

We look forward to hearing from you tomorrow and trust that your underwriting goes smoothly".

A copy of Mr Gray's letter (Commission Document 124B to be tendered as Document CU578­579) was provided to ArthurRobinson & Hedderwicksfor their review and advice. Arthur Robinson & Hedderwicks's advice issued on 6 May 1997 (Commission Document 124Bto be tendered asdocument CU580­581) indicates that in their view the position taken by SAGA was totally unreasonable from Cue'sperspective. The full letter of advicestated as follows:­

"We refer to a letter dated 5 May 1997 from Rob Gray of Flemings.

In addition to foreshadowing a number of detailed comments on the draft Jambi Merang Sale and Purchase Agreement, MrGray refers to somefundamental concerns regarding Cue's proposed new Clause 5.4(a), which provides for the return of the $2.5 million deposit inthe event that certainconditions precedent set out in Clause 2.2 are not satisfied. SAGA's position appears to be that the deposit should remainnon­refundable even where:

(i) Cue is unable to obtain acceptable underwriting and debt financing arrangements;

(ii) Cue is unable to obtain requisite shareholder approvals for the acquisition; or

(iii) the Indonesian Government or Pertamina fail to approve the acquisition by Cue of SAGA's interest in the PSC covering theJambi MerangBlock.

We understand that you have already put in place suitable underwriting arrangements, and that you will be recommending tothe Board that Cue waive thecondition precedent relating to debt financing and underwriting. In view of the solvency requirements under the CorporationsLaw previously discussedwith you, the Board would have to be satisfied that it was in a position to meet its financial obligations based on theunderwriting arrangement which areshortly to be finalised, the likelihood of the company obtaining debt financing on suitable terms and conditions or other lines ofcredit available to it.

In relation to the question of shareholder approval, we appreciate that the proposed acquisition has the support of the CueBoard and major shareholders,and that it is likely that shareholder approval will be obtained. As you are aware, shareholder approval is required underListing Rule 7.1, as it isproposed to issue more than 10% of Cue's nominal share capital within a 12 month period. Failure to obtain shareholderapproval would constitute botha breach of the Listing Rules and of the Corporations Law, and could expose the company to material adverse consequencesincluding de­listing.

In our view, in the absence of shareholder approval, the Board would have no choice but not to proceed with the transaction.For present purposes, theBoard should form a view as to whether a prior agreement to forfeit the $2.5 million deposit in these circumstances wouldconstitute a desirable use of shareholder's funds.

Finally, SAGA's suggestion that Cue accept the risk of lack of government approval appears to us to be totally unreasonable.We are not aware of anyinstances in which other clients have agreed, in similar circumstances, to accept such a risk in connection with governmentalapprovals. This isparticularly so in light of the nature of the regulatory environment in Indonesia, which is sometimes unpredictable. Werecommend that Cue insist thatthe deposit be expressed to be refundable in the event that necessary government approvals are not forthcoming. The sameconsiderations apply to anyother necessary third party or governmental consents.

Please contact us if you wish to discuss any of these issues in more detail".

On 7 May 1997, at a Cue Board meeting (Commission Document 642A to be tendered as document CU582­583) the CueBoard resolved to proceedwith the acquisition of SAGA's Indonesian assets.

On 9 May 1997 an amended Sale and Purchase Agreement ("SPA") was provided to Arthur Robinson & Hedderwicks for theirreview. Arthur Robinson &Hedderwicks's review (Commission Document 642A to be tendered as document CU584­585) indicated that the"amended" SPA did not include theamendments that had been requested. Arthur Robinson & Hedderwicks revealed that the amended SPA reflects SAGA's "takeit or leave it" position. ArthurRobinson & Hedderwicks stated that there was nothing that they could possibly add to their earlier comments (tendereddocument CU580­581.

Arthur Robinson & Hedderwicks's letter stated as follows:­

"We refer to your letter and attached memorandum, which we received this morning, and to a marked up version of the JambiMerang Sale and PurchaseAgreement forwarded to us by Flemings.

In line with your comments on your most recent negotiations with SAGA, the revised version of the Sale and PurchaseAgreements reflects SAGA's "takeit or leave it" position. The revised Agreement adopts very few of the amendments requested in our letter to Flemings of 7 May1997, and, in particular,does not provide for the deposit to be refundable in any circumstances. There is probably nothing that we can usefully add toour earlier commentsconcerning the form of the Sale and Purchase Agreement.

We note that, in your memorandum to Andrew Knox and the Cue Board, you comment that if Cue experiences difficulties, forexample, in obtainingPertamina approval, then lack of shareholder approval will enable Cue to withdraw from the deal and obtain a refund of itsdeposit.

In our view, there are a number of problems with this strategy. First, although obtaining shareholder approval is a conditionprecedent to the Closing ofthe acquisition, under the terms of the Agreement as currently drafted, failure of such a condition precedent will not entitle Cueto a refund of its deposit.Lack of shareholder approval would simply excuse Cue from providing the balance of the purchase price.

Second, even if Cue were to argue that it was in fact entitled to a refund of the deposit on some basis other than the terms ofthe Agreement, such as anequitable argument based on principles of restitution (which argument we think would be very difficult to sustain), Cue wouldnevertheless facesignificant practical difficulties in commencing proceedings in the United Kingdom to recover a deposit amount already paidinto SAGA's account. Such an exercise would involve considerable time and expense, and would entail added uncertainly in seeking to enforce anyjudgment against acompany based in Norway.

Finally, we note that the form of the Sale and Purchase Agreement requires Cue to use its "best endeavours" to obtain theapproval of its shareholdersand to procure that any explanatory memorandum to shareholders contains a recommendation from the directors to vote infavour of all resolutionsnecessary to implement the acquisition. Cue is also required to use reasonable endeavours to ensure the fulfilment of the saidconditions precedent.

In our view, there would be a significant risk that the strategy outlined in your memorandum could constitute a failure to usesuch "best" or "reasonable"endeavours, particularly as this memorandum would be required to be discovered in the course of any related proceedingscommenced by SAGA

seeking specific performance of Cue's agreement to make the acquisition.

We appreciate the SAGA's "take it or leave it" approach has rendered your negotiating position extremely difficult, and thatyou are confident that therequired Pertamina consents will be forthcoming. However, the condition precedent relating to shareholder approval wouldafford Cue almost no scopeto recover the $2.5 million deposit, and, in light of the various "best endeavours" obligations imposed on Cue. Cue shouldavoid being seen to attempt toconvince shareholders not to support the acquisition. Of course, Cue would still be bound to disclose to shareholders for thepurposes of the meeting toapprove the capital raising all information relevant to the making of a decision, and the best endeavours obligations do notoblige Cue to present in afavourable light any information which may persuade shareholders to vote against the proposed resolution.

Please contact us if you have any questions in relation to these matters".

By a circular resolution (Commission Document 124A to be tendered as Documents CU586­590). Mr Jacobs advised theCue directors of the "take itor leave it" position of SAGA. The circular also enclosed a copy of Arthur Robinson & Hedderwicks's advice dated 9 May 1997(tendered documentCU584­585. The full resolution was as follows:­

"CUE ENERGY RESOURCES N.L. ("Cue Energy)

RESOLUTION OF DIRECTORS PURSUANT TO THE ARTICLES OF ASSOCIATION

Resolved that an agreement be tendered into in respect to the acquisition of the Jambi Merang Interest (as defined) betweenCue Energy and SAGAPetroleum Indonesia Jambi A.S. ("Saga") generally on the terms and conditions and in the form previously submitted todirectors with such modificationsapproved of and hereby authorised to be approved of by Managing Director, Mr Frank Jacobs, conditional on Cue Energyshareholders approval, andconditional upon letters from major shareholders (51) (as drafted by Saga) as to their vote in shareholders meeting in favour ofsuch purchase.

The following are the basic financial terms and conditions:

1. Price of US$27 million plus/minus adjustments, payable by a non­refundable deposit of US$2.5 million.2. The deposit is not refundable in the event that Pertamina and the Indonesian Government do not approve of Cue Energy asthe buyer. Sagaarenot willing to take the risk on any financial position.3. The risks to Cue Energy are detailed in the attached letter from Arthur Robinson & Hedderwicks.4. The directors acknowledge that they are facing a "take it or leave it" decision.Resolved to authorise Mr Jacobs to telephone Saga at 6 am Friday 9th (London time) to inform Saga that the principle of nonrefundability,specifically relating to Pertamina/Government approval is acceptable to Cue Energy.

Signed as a resolution of directors".

The copy of this resolution found in Commission Document 124A includes what would appear to be the signature of MrKaul.

On 9 May 1997, in order to provide further comfort to SAGA, Mr Jacobs faxed a draft letter to Mr Kaul (CommissionDocument 124A to be tendered asDocuments CU591­593) apparently it would seem with the intention that it be sent by NPF to SAGA Indonesia, largely for thepurpose of assuring SAGAthat Cue had the backing of its largest shareholder to assist Cue implement the acquisition of SAGA's Indonesian assets. Theletter was signed by Mr Kauland one other Trustee which would appears to be Mr Henry Leonard and was sent on NPF letterhead on 12 May 1997(Commission Document 334 tobe tendered as document CU514­595.

The letter to SAGA needs to be read in full as it provides indications of what could be said to be improper conduct on behalf ofMr Kaul. It is apparent thatthe letter included a misrepresentation, in paragraph numbered 2.2 of that letter.

"Dear Sir

SUBJECT: CUE ENERGY RESOURCES NL ('CUE")

I. This letter sets out the, terms on which we undertake to vote in favour of certain solutions to be proposed at a specialgeneral meeting of Cue(the "Special General Meeting") which it is proposed will be held as soon as possible and, in any event, by 30 June 1997.II. We warrant and undertake that:­A. We are the holder of 26, 156, 500 (ordinary) shares of no par value in the capital of Cue (the "Shares");B. We hold the Shares free from any encumbrance, lien, charge or third party right of any nature;

C. We have power and authority to exercise all of the voting rights attaching to the Shares.III. We irrevocably undertake as follows:A. We will not sell, transfer or otherwise dispose of any of the Shares or any interest therein prior to 1 July 1997;B. We will exercise all voting rights attaching to the Shares in favour of all resolutions to be put to the Special General Meetingto approve theacquisition by Cue of the interest of Saga Petroleum Indonesia Jambi AS in the Jambi Merang production sharing contract(and relatedagreements) and the related placement of shares in Cue to existing and/or new shareholders and all other resolutions whichwould assist theimplementation of the acquisition. We will vote against any proposal or resolution to amend any such resolutions or to adjournthe meeting.C. For the purpose set out in paragraph 3.2 we will complete, execute and deliver in accordance with all applicable legalrequirements a validform or forms of proxy in respect of the Shares, appointing the chairman of the Special General Meeting as our proxy andinstructing him tovote on our behalf on the terms of paragraph 3.2.IV. To the extent that any Shares are not registered in our name. We will procure the registered holder(s) thereof to take allsuch action asshall be necessary for the terms of this undertaking to be complied with in full.V. We understand and acknowledge that particulars of this undertaking will be contained in the circular to the shareholders ofCue conveningthe Special General Meeting and any associated press announcement and we hereby consent to the issue of such circularand pressannouncement containing such particulars. We further understand and acknowledge that this undertaking may be madeavailable forinspection by members of the public.VI. Time shall be of the essence in this undertaking.VII. This undertaking shall be governed by and construed in accordance with English law".We make the following observations:­

The shares held by NPF, were acquired with borrowed monies from the ANZ in PNG, and were held in the name of ANZNominees inaccordance with the terms and conditions of the loan.Consequently it was incorrect of NPF to represent that "we hold the shares free from any encumbrance, lien, charge or thirdpartyright of any nature". Clearly ANZ had an interest in these shares.

We can find nothing to suggest that Mr Kaul sought the advice of internal or external counsel in relation to the deed inquestion, andindeed we note that the deed was jointly signed by Mr Leonard and the corporate seal affixed, rather then with the PrincipalLegalCounsel / Corporate Secretary.The deed represented that NPF would not sell the shares prior to 1 July 1997. This representation again was apparentlygivenwithout the express authority of the Board of Trustee of NPF and would prevent NPF realising short term profits should theopportunity arise.On 12 May 1997, Cue announced to the stock exchange the signing of the sale and purchase agreement in relation toSAGA's Indonesian Assets,and the agreement by ANZ Securities to fully underwrite placement to raise between A$21 million and $25 million in equity tofinance the US$27million acquisition cost, the remaining to be financed by debt (Commission Document 124A to be tendered as documentCU596­600.

The special shareholders meeting to authorise the issue of shares and ratify the SPA was held on 25 June 1997 in Wellington,New Zealand.(Commission Document 124A). The notice for this special shareholders meeting (tendered document CU601­602) includedan InformationMemorandum (Commission Document 124A to be tendered as document CU). A review of the information memorandumindicates the following:­

The information memorandum was in most parts an extraction of the Internal Valuation and Purchases Proposaldocument (tendered document CU509­543.Whilst page seven of the information memorandum provides a brief on the SPA it did not , importantly for what transpireslater, either on that pageor elsewhere state the basis of the US$2.5 million deposit – this was it was argued by SAGA later, non­refundable.The information memorandum includes an independent report by PetroVal Australasia Pty Ltd's (PetroVal) (tendereddocument CU612­623) as towhether the consideration of US$27 million was a fair market value for the assets. PetroVal was requested on 21st May 1997and the reportwas provided to Cue on 26 May 1997. Although PetroVal gave an opinion that the consideration was fair, they expressed alimitation in scopedue to the constraints imposed by a deadline of one week given by Cue. It was further stated that their work had been limitedwhere they hadnot performed a title search, due diligence of contracts and joint venture agreements.

Conflict of interest where Mr Kaul, Mr Copland and Mr Wright subscribed for shares in Cue by way of NPF'sunderwriting exercise

We note from a stock exchange release dated 30 June 1997 (Commission Document 124A), to be tendered as DocumentsCU630­631 that Cue wassuccessful in its share placement raising A$25 million of which NPF subscribed A$5 million. In addition, we note from aschedule taken from CommissionDocument 124A, to be tendered as document CU632 that NPF's sub­underwriting allocation of A$5 million was allotted asdetailed below.

Confirmations detailed in Commission Document 334 and 642A (to be tendered documents CU[ ] – CU [ ]) suggest that MrCopland, Mr Kaul, and MrWright subscribed to the issue.

With NPF committed to investing in Cue's share placement for Saga, we note from the Managing Directors correspondencefile, Commission Document334 and from correspondence found in Commission Document 124, that NPF through Mr Kaul sought to obtaincommitments from individuals and otherPNG institutions.

Commission Document 334 included the following confirmations to participate in the share placement for a 4% sub­underwriting fee:­

We also note from Commission Document 224 the following exchange of correspondence between Mr Copland and MrKaul, which will be tendered as Documents CU636.

A fax dated 15 May 1997 from David Copland to Robert Kaul, National Provident Fund states :­

"Robert,

I would like to confirm that I wish to sub­underwrite A$100,000 (One hundred thousand Australian dollars) of the firm stockunderwritten by NPF in thecurrent Cue share placement. The fee payable to me for this sub­underwriting will be 3% or more if you are prepared to offerit.

Can you please confirm that this proposal is acceptable to National Provident Fund".

We also find in Commission Document 334 a copy of the following inter – office memorandum.(to be tendered DocumentCU637.

"Thank you for your note of 15th May 1997.

Be informed that NPF is happy to accept your offer to sub­underwrite A$100,000.00 for a 3% fee.

Please contact Noel or myself for arrangements".

Other matters of note concerning the investment in Cue in respect of the SAGA share placement

It is apparent from a review of the NPF Board minutes (Commission Document 49) and Board Papers (CommissionDocument 19/20) for this periodof time that the trustees were not fully informed of events in respect of Cue. We can find nothing to suggest that Mr Kauldisclosed to the Trustees thefollowing resolutions and representations that he had given without the approval of the Board of Trustees.

the circular resolution to approve the offer to SAGA of US$30 million inclusive of US$15 million deferred component(tendered documentCU544­545), support for a revised offer to SAGA of US$25 million (with no deferred component) where it was specifically stated thatCue would goahead with the bid if NPF supported the revised offer (tendered document CU552­557)representation to SAGA's London agents (Robert Fleming) on 28 April 1997, on request from Mr Jacobs, indicating thatCue's bid had thebacking of its largest shareholder, NPF. (tendered document CU563.)

Minister for Finance Approval

Examination of the files submitted to the Commission in answer to a Summons (Commission Document 5A – 5E) suggeststhat Mr Kaul first soughtapproval from the Minister for Finance in relation to NPF's investment and underwriting of the share placement on 20th May1997. In response to theMinister seeking advice, a brief prepared by the then acting First Assistant Secretary, Mr Elamo highlights caution to hissuperiors including the Ministerof Finance.

The full text of the brief to First Assistant Secretary Economic Policy Unit, the acting Deputy Secretary Finance PlanningAdministration, the actingSecretary for Finance and the Minister for Finance bears reading in full.

The brief states:­

"Re: REQUEST FOR MINISTER TO APPROVE A$10 MILLION FOR PURCHASE OF SHARES IN CUE ENERGYRESOURCES BY NATIONALPROVIDENT FUND

The Managing Director of NPF applied to Minister on 20th May for approval to accept an allocation of 33.435 million shares inthe underwriting by ANZSecurities of a new issue of shares by Cue Energy Resources NL ("Cue"). If approved this will amount to an exposure of up toA$10 million by NPF, inthe event that not all the shares are taken up.

The Issue is to raise a total of between A$21 million and A$25 million for Cue to acquire the Indonesian petroleum assets of acompany called SAGA,which has decided to divest from Indonesia, in favour of investing in the North Sea (UK / Norway) and Libya. Saga'sIndonesian assets includes its 7percent share in the Gelam gasfield in South Sumatra.

Cue currently has about 90 million shares on issue, of which NPF already holds 20 per cent, giving it two Directors on Cue'sBoard (Mr Kaul and MrCopeland).

The following policy issues are raised:

"1 Does this further exposure to Cue conform with the Investment Guidelines? NPF already has a very substantial exposure toCue, being itsbiggest single shareholder. The other shareholders are mainly Australian or New Zealander. The Company has a stake in theGobe project amongstother interests in this country but has yet to report a profit. However NPF can point to a capital gain on its original price (12cents) for its shares, withCue's shares trading at 23 cents, but that may well be eroded following the dilution arising from the new issue which willdouble the number of shareson issue in 1996/97. The effect of NPF's large stake in Cue is already shown by its active role in the affairs of Cue by virtue ofbeing the principalshareholder, rather than merely a passive investor. What qualifications does NPF have to manage an oil company?

2. Does NPF's proposed further investment in an oil and gas exploration company conform with the long established nationalpolicy of notaccepting exploration risk in the State's mining and petroleum investments? NPF is a wholly state­owned entity effectivelyguaranteed by the State,which thereby carries all NPF's exposures as if they were its own.3. Has NPF itself done, or seen, a due diligence evaluation of Saga's assets? The purpose of the new share issue is for Cueto acquire theIndonesian interests of Saga. There appears to be no independent appraisal of these interests. Robert Fleming of Londonwho are handling the Sagasale merely opened up a data room for inspection. Cue reports a single figure for "proven and probable reserves" of 235billion cubic feet of gas atGelam. There may well be this gas but it is a small field, Saga has only 7% of it, and no production has occurred so far. On theinformation providedthere is not much basis for determining whether A$10 million is a fair price for NPF's 40% of Cue's proposed purchase ofSaga's 7% stake at Gelam,especially taking into account the commitment for Cue to raise its share of capital expenditure of US$90.5 million, of whichUS$55 million (K76 million)

is due to be spent in 1997­98. This is in addition to the money raised to buy out Saga.4. Saga's other main asset to be acquired by Cue is the Pulau Gading gas field. This is a highly speculative project, but Cuehas obtaineddeferred and contingent payment terms for this part of Saga, which limits its exposure in case this field does not proceed todevelopment.5. Has NPF considered the political risks of investments in Indonesia, with its recent record of arbitrary compulsoryacquisitions?.6. More generally, why is NPF so keen on using PNG workers' savings to invest in non­PNG companies' non­PNG assets?For a country likeKuwait foreign investment makes sense because of its depleting resources. Papua New Guinea surely has enoughundeveloped resources at home towarrant every single investment dollar it can raise before it helps Indonesia develop its resources. Not only that, there areupcoming gas developmentshere (e.g. pipeline to Queensland) which NPF should keep itself liquid to invest in.CONCLUSION

The above comments are intended to caution acceptance of, and not necessarily to reject, the NPF application for Minister'sapproval. The fundamentalissue of NPF's planned investment in Indonesian gas projects, when Indonesia is this country's main competitor for gasdevelopment, is more politicalthan economic."

It appears that, having knowledge of Mr Elema's brief, Mr Kaul sent a letter (Commission Document 124A to be tendered asDocuments CU638­641)to Mr Isaac Lupari, Acting Secretary of Finance, addressing the issues raised by Mr Elema. Mr Kaul letter stated as follows:­

"Further to my discussion with you this morning (26/5/97), I confirmed that, Cue is a Oil and Gas Company and that:

1. Of the A$7.0 million NPF is underwriting and the A$3.0 million NPF is sub­writing, ANZ Nominees (the underwriter) hasplaced the A$3 millionwith a US institutional investor.

Again, of the A$7.0 million underwritten by NPF, A$0.2 million has been placed with S.G. Warburg to top up A$2.8 millionallocation from theunderwriter's A$15 million portion, A$1.80 million placed with individuals within PNG and abroad and A$5.0 million will betaken up by NPF to maintainits 20% interest.

NPF will further enjoy A$350,000.00 for underwriting the A$7.00 million, plus a A$120,000.00 for sub­underwriting the A$3.0million, to total A$470,000.00to NPF as underwriting fees.

2. There are a number of related issues of policy:

a) Why is NPF investing offshore since Cue is a Non PNG Company?

­ Cue whilst a New Zealand Company also has a PNG subsidiary called, Cue PNG Oil Company Pty Ltd, due to its interest in4 PNG prospectsand project. One o f which G.E. Gobe will shortly be producing oil.­ NPF's first involvement in Cue was based on Cue's interest in PNG and the commitment the company will be giving toexploration and wherenecessary production in this country.­ Cue's interest is to expand from PNG, to Australia and Indonesia and New Zealand as part of its Corporate Strategy. Asset inUS werebasically those held or acquired through CMS Nomeco which was bought in 1995, because of the S.E. Gobe interest.

It is, therefore, important to note that major assets of Cue are currently in PNG, although new assets are now being acquiredin Australia and Indonesia,to expand and grow the company.

a) Indonesian Risk

Like PNG, Indonesia is rich also in resources, oil, gas and other resources.

Foreign investor's perception of political risk in Indonesia would not be any different then what they perceive of PNG.

Sometimes this issues can be unfairly placed by foreigners, and we in PNG do know better, since it is possible this issue canbe over emphasisedparticularly where it may not be that relevant.

I do not see Indonesia being any different since, large multi­international companies, including Crown Agent, formerEmployers of Tim Curtain has anoffice and business interest in Indonesia.

b) Increase Of Members Wealth

NPF has a responsibility to increase its members wealth, and the only way we can do that is by increasing the profit ability ofNPF, via an investmentportfolio which is, stable, diverted to good future upside projects and of minimum risk to the members money.

Cue has very significant "underlying assets" which would be able to give capital value growth to our investments.

It must be noted that the NPF Board and Management has taken investment decisions, based on careful considerations notonly on the present, but alsothe future viability of the Fund. Therefore, decisions taken are made based on evidence of a risk taken to be worthwhile, givingfuture upside in return toNPF, and its members.

Over the last three (3) years, investment decisions taken by the Fund's Management and Board has been correct.

The Fund is now running smoothly and changing the gears at this stage may be counter productive to the Fund and PNG".

A further brief apparently prepared by Salamo Elema can be found in Commission Document 5C. In this brief addressed toFAS (EPU), acting DeputySecretary (FP&A), acting Secretary and acting Minister, Mr Elema reviewed the response from Mr Kaul and gave furtheradvice to his seniors that NPF'sinvestment proposal should be rejected. Mr Elema's advice also highlighted a further issue concerning an apparent conflict ofinterest, which existed withMr Copland acting as the Chairman of NPF and at the same time, having 200,000 share options in Cue. Mr Elema's response(Commission Document 5C)to be tendered as Documents CU642­643 states as follows:­

"The faxed letter of 26th May to Secretary from Mr. Kaul, Managing Director of National Provident Fund (NPF), seeks todefend NPF's request for theMinister to approve its underwriting of a share issue by Cue Energy Resources ("Cue"), following our advice that it should berejected (see my Brief of21st May).

The Managing Director's letter states that NPF's total exposure to this issue has now been reduced from A$10 million to A$6.8million, and that if asexpected A$1.8 million is successfully placed by NPF, it will only itself take up shares to the value of A$5 million which willmaintain its present 19.9%stake in Cue.

However the following points are noted:

1. NPF's 19.9% stake in Cue already exceeds the 10% maximum holding in any one company laid down by the Minister forFinance's InvestmentGuidelines for superannuation funds.

2. There is a clear conflict of interest in the Chairman of NPF's role as Chairman and as a considerable private shareholder inCue. Mr. DavidCopland has been granted 200,000 share options in Cue in his own capacity, even though his appointment to the Board ofCue arose from his role asChairman of NPF when it became Cue's largest shareholder. Chairman of statutory bodies like NPF are not supposed tobenefit personally from theirrole as representatives of the State. Mr. Copeland should therefore he asked to resign from the Board of NPF.

CONCLUSION

The request by NPF for approval of its proposed underwriting of the share issue by Cue should be rejected because NPF'sholding in Cue alreadyexceeds its ceiling under the Investment Guidelines, and Mr. Copland should stand down as Chairman of NPF now that hehas become a substantialshareholder in Cue".

It would seem that on 29 May 1995, Mr Nakikus Konga was acting Finance Minister in the absence of the Hon. Chris Haivetabecause an unsigned NPFletter to Mr Konga requesting approval of the investment proposal can be found in Commission Document 124A. A copy willbe tendered asDocuments CU644­646.

We cannot find a response from Mr Konga. A possible explanation may be provided by the fact that we find a copy of thesame NPF letter seekingapproval for the investment / underwriting, this time addressed to the Hon. Chris Haiveta, MP dated 4 June 1997. The copy ofthe letter found inCommission Document 656, to the Minister would appear to bear the signature of Mr Wright signing on behalf of Mr Kaul.

We then find an approval letter from the Hon. Chris Haiveta, MP also dated 4 June 1997 (Commission Document 124A tobe tendered as documentCU647 approving NPF to underwrite A$7 million and sub­underwrite A$3 million but limiting the total actual cash committed byNPF to A$5 million to maintain20% equity holding.

For an as yet unknown reason, subsequent to Mr Haiveta's letter of approval dated 4 June 1997, Mr Haiveta provided arevised approval dated 19 June1997 which included a number of conditional issues (Commission Document 124A to be tendered as document CU648­649. The letter states:­

"I am pleased to convey my formal approval of the National Provident Fund's revised application concerning its underwriting ofthe share issue by CueEnergy Resources NL. My approval is subject to the following conditions:

1. Maximum value of acquisition of additional shares in Cue by NPF not to exceed K5 million, in accordance with Section 61 ofthe PublicFinance (Management) Act.2. Reduction in NPF's holding in Cue to 10 per cent as soon as practicable.3. Reduction within three months (i.e. by 31 August) of NPF's equity portfolio to 60 per cent of its total investments.4. Reversal of the Board of NPF's decision not to participate in the US$16 million Pacific Venture Fund established by CDC toinvest in mediumscale national enterprises in commercial, industrial, and other mainly non­mining sectors.In regards to these conditions, please point out to the Board my concerns as follows:­

(1) that NPF is over exposed to equities in mining and petroleum companies, and under exposed to national enterprises in thecommercial andindustrial sectors,(2) that NPF's opt out from the Venture Fund will not help in ensuring that PNG benefits appropriately from the Fund'sinvestment in sectors inwhich PNG national businessmen are engaged,(3) that NPF's extra investment in Cue is ultimately only helping a foreign company to develop its non­PNG interest; and,(4) that there appears to be a conflict of interest between the Chairman of NPF's role as protector of national interest in theprudent managementof the investments of NPF, and his role as holder of 200,000 options in Cue.I wish you to convey these concerns to your Board for appropriate action".

It would seem that Mr Haiveta's letter was tabled to the NPF Board of Trustees at the 107th meeting held on 4 July 1997. Theminutes (CommissionDocument 49 to be tendered as document CU650 record the following:­

"The Managing Director tabled a letter from the Deputy Prime Minister and Minister for Finance, Chris Haiveta dated 19 June1997. Discussion ensuedamongst the Trustees regarding the contents of the letter. It was resolved that the Trustees await the formation of thegovernment when the incomingMinister for Finance would be fully briefed on the overall investment strategy of the Fund".

The letter of approval from the Minister for Finance included a number of significant concerns and of particular relevance tothe terms of reference for thisInquiry.

­ NPF was over exposed to equities in Mining and Petroleum Companies;­ Consequently NPF was under exposed to National enterprises in commerce and industrial sectors;­ There was an apparent conflict of interest "between the Chairman of NPF's role as protector of the national interest in theprudent managementof the investments of NPF and his role as holder of 200,000 options in Cue in further the interest of Cue". The minutes record that "discussion ensued amongst the trustees regarding the contents of the letter". Unfortunately theminutes do not record whatwas discussed. The issues raised by the Minister for Finance were worthy of proper and full disclosure and the views anddecision­making process ofthe Board in relation to each of the points should have been minuted explicitly.

In order to properly assess the conduct of the Trustees it is perhaps desirable that the Commission will need to hear from MrKaul, Mr Copland and anumber of the Trustees present at this meeting to ascertain what discussion ensued amongst the Trustees.

The Board Papers that can be found in Commission Document 20 included the following update within the ManagingDirector's Report:­

"6. Cue Energy Resources NL

Cue is currently trading at 30 cents range with the June 1998 options trading at the 12 cents level.

We have commenced to sell down the options to try and reach a 15 million option level, so that we are not forced into a takeover bid situation in theevent we exercise any of the options by June 1998.

The acquisition activities of SAGA assets in Indonesia are going well with the A$25 million placement being fully subscribed.Whilst NPF underwroteA$7.0 million and sub­underwrote A$3.0 million, we are now left with only A$5.0 million worth of stock to subscribe to, tomaintain our 20% equity position in Cue.

SE Gobe project is at the construction stage and progressing well. Other activities are progressing fairly well except Yolla andSnowbird".

SAGA transaction – post June 1997

Subsequent to the share placement of A$25 million, Cue was required under the sale and purchase agreement to satisfy anumber of conditions precedent,including:­

Raising debt of A$14 million for the balance of consideration due to SAGA (tendered document CU561.Raising finance to fund capital and operating costs relating to set­up costs in Indonesia and the exploration anddevelopment costs in JambiMerang (Commission Document 124A to be tendered as document CU651­653.Meet certain requirements to obtain Pertamina and Government of Indonesia approval (tendered document CU651)

Cue options exercisable 30 June 1998

It should be noted that Cue's budgeting anticipated the conversion of the listed company options exercisable 30 June 1998where this would provideessential cash flow, assisting in funding the company's Indonesian operations. However, the options would only be exercisableif the share price ofCue's ordinary shares was above 25 cents per share.

Cue seeks debt financing to enable completion of the SAGA transaction

In July 1997 Cue's Board minutes record that several financing proposals were under consideration (Commission Document124A to be tendered asDocuments CU654­655). At the end of July 1997 Cue issued a stock exchange release (Commission Document 124A to betendered asDocuments CU656­657 indicating that a US$21.6 million facility repayable by 2006 had been arranged with the Tokai BankLimited ("Tokai") of Singaporesubject to due diligence. The indicative term sheet of the loan from Tokai (taken from the 23 July 1997 Cue Board meetingpapers, CommissionDocument 124B), to be tendered as Documents CU658­665 indicated that US$7.5 million of the loan was repayable before31 December 1998.

Cue's cost over­runs – Indonesia – PT Wirabuana

In the meantime, Cue with its joint venture partner was granted the Production Sharing Contract ( "PSC") for the TajungJabung Area (CommissionDocument 124A to be tendered as Documents CU666­667) However Cue was unsuccessful in its attempts to farm out itsjoint venture's costs(PT Wirabuana's) and consequently Cue was required to bear these costs, as stipulated by the agreement with PT Wirabuana(clause 3a, tendereddocument CU439). Cue's share of the costs to end of August 1997 was US$152,000 and was unbudgeted (CommissionDocument 124A to betendered as document CU668­669). It appears that based on tendered document CU668­669/ Commission Document124A to be tendered asdocument CU670, Cue expressed dissatisfaction with the financial discipline of Wirabuana, the operators of the TajungJabung PSC.

Cue to raise A$10 million with new share placement

A budget for Cue's operations in Indonesia (Commission Document 124B to be tendered as document CU671) waspresented at the 23 July 1997Cue Board meeting. This budget shows that in the period 1997 and 1998, the Indonesian operation was forecasted to requireapproximately A$53 million.

According to the budget, significant expenditure was needed in mid­1998 for the Pulau Gading appraisal programme. As aresult, the Cue Board resolvedat its 23 July 1997 meeting to raise further equity of A$10 million through a new share placement (Commission Document124B to be tendered as

document CU672). This share placement actually raised A$12 million (Commission Document 124C to be tendered asdocument CU673 when theplacement was completed in late November 1997.

It is clear from a review of Cue's Board minutes and inter­company memoranda that at this time (found in CommissionDocument 124C) Cue wasexperiencing delays in obtaining the various approvals from Pertamina and the Indonesian Government and as aconsequence Cue's overhead costsexceeded budget sufficient to cause concern amongst the Board of Directors (Commission Document 124C / to betendered Document 674­676.The minutes record that the Board expressed dissatisfaction of the Indonesian costs and the manner in which commitmentswere contracted prior to Boardapproval. These concerns are evident from correspondence found in Commission Document 124C and to be tendered asDocuments CU674­676.A fax apparently from Mr Bruce Wood, a director of Cue to Mr Jacobs states:­

"Frank,

Re Sampang PSC, Legal Costs G Albers and Director's Share Savings Plan

On 8th August you circulated a Board Resolution to approve an increase in Cue's share of the Sampang PSC signature bonusfrom $75,000 to $150,000.Whilst this in itself is a small amount of money it dies concern me that costs have already started to rise even before the dealis done. I share DavidCopland's concerns that 1998 is looking to be a very tight year for cash and question if Cue should be assuming any extraliabilities at this stage. It isnot so much the extra $75,000 that worries me but the overall level of Cue's liabilities. This incident really caused me torethink the whole question ofCue's involvement at this stage in Sampang PSC.

I have now read all the correspondence regarding the matter of Geoffrey's Legal Fees and the advice that the bills did notbreach the legal limit. I notethe procedures that you have proposed for obtaining further advice. It had been my understanding that this arrangement wasalready in place. Perhapsit is an issue that should be discussed at the next Board meeting.

I support David Copland's comments on the Director's Share Savings Plan. Whatever plan was finally chosen I had assumedthat it would requireformal Shareholder approval. A disclosed pricing arrangement surely seems more equitable than allowing some marketflexibility.

I'll ring you in Jakarta in the next few days to discuss all these issues.

Bruce Wood".

A fax from Mr Kaul to Mr Albers found in Commission Document 124C / to be tendered Document CU677­677A states:­

"It was clear from the last meeting that Directors were not happy with the manner in which the affairs of the company werebeing managed.

Hence matters needing attention in the coming meeting need to include issues relating to accurate financial forecasting andmanagement accountabilityto the Board.

I would thin agenda item 2, 4, 6, 7, 9, 10, and 11 should be discussed. The other issues can wait until the November Boardmeeting".

And a fax from Mr Copland found Commission Document 124C / to be tendered as Document CU678 stated that :­

"I refer to the draft Agenda sent out for the meeting and wish to make one point very strongly. This is a special meeting ofDirectors called to resolvemajor issues of concern. I do not believe that any other members of staff should be in attendance. Frank Jacobs as theManaging Director should bein possession of all facts relating to the business and should not require the support of others".

As a result of the matters being raised by the aforementioned Board Directors, a special Cue Board meeting was held on 30September 1997. The minutesof this meeting taken from Commission Document 124B will be tendered as document CU679­690.

The minutes of the Cue Board Meeting held 30 September 1997 are revelatory of the Board's dissatisfaction with the mannerin which the company wasbeing run by the company's Managing Director, Mr Jacobs particularly with regard to the company's Indonesian operations.The minutes for this meeting,which can be found in Commission Document 124B whilst lengthy bear reading in full. Both Mr Kaul and Mr Copland werepresent at this meeting and itis apparent from the minutes that Mr Copland contributed to discussions at this meeting. The minutes state:­

"The Chairman opened the meeting at 9.40 am.

At the suggestion of WD Copland it was agreed to change the Agenda and to discuss Company Culture first.

9(a) Company Culture

WD Copland opened with a newspaper article on BHP. "The Board is in control and only the Board is accountable toShareholders". He said he wishedto see the following in Cue:

­ Openness­ Frankness­ Transparency­ Highest ethical standardsPCR Hatton supported his comments, stating that Cue has not used the Board correctly and has treated it as a rubber stamp.He said that executivesare staff responsible to the Board and that no commitments should be made prior to Board approval.

Todd Matter

The question of a Todd directorship was raised by PCR Hatton. He enquired as to when Todd was offered a Board seat.

The Managing Director detailed to the Board the situation from the correspondence leading up to the Todd offer for aplacement and rejection by theBoard on September 3. The Managing Director wrote to Todd on September 4 and rejected the offer for a placement to Todd.

PCR Hatton pointed out that the Managing Director had written to Todd and offered a Board seat on 25 July. PCR Hattonstated this was not within theManaging Director's authority as it has not been approved by the Board.

Mr Jacobs was of the opinion that the Board minutes did not record everything that is said in the meeting. He stated that it hadbeen Todd's number onerequirement to have Board presentation if a placement was to proceed.

WD Copland commented that Board approval was clearly not given in 23 July Board meeting. Board papers were signed,approved by all and clearly didnot give Managing Director authority to offer Todd a Board seat.

PCR Hatton stated that it is not within the authority of the Managing Director to offer Board seats.

B Wood said 23 July was his first Board meeting. He had difficulty recalling the discussion at the meeting but said that Boardcontrol is a major issue,the Board controls the Company – there is no other option.

Mr Albers and Mr Kaul added that the requirement for a directorship by Todd could have been mentioned by Mr Jacobs andthat the meeting might haveacquiesced with the suggestion.

Wirabuana Carry:

PCR Hatton raised the issue of the Wirabuana Carry. Copies of a Circular Resolution and annexures were given to the Boardby the Managing Director.

PCR Hatton stated this was an example of commitment prior to Board approval. PCR Hatton stated he only signed on 2September, this being after thecommitment had been made. The Managing Director advised he had moved on a majority vote by the Board.

Chairman said that he believed the Board members did not comprehend the full extent of the Wirabuana Carry, as nowproposed, from the informationgiven to them. The Chairman stated that the Wirabuana letters give the impression that the carry is an exploration carry.Chairman said that he did notunderstand the ramifications of the Wirabuana carry proposal that had been approved.

Managing Director replied that questions need to be asked. He could not be expected to be a mind reader and that all therelevant information had beengiven in the annexures in the Circular Resolution.

PCR Hatton replied that it is a requirement of the Managing Director that all details are set out for the Directors. PCR Hattondenied seeing theannexures.

Managing Director stated that he believed that a majority on a Circular Resolution was approved but that he agreed onsubsequent advice that this wasincorrect.

Managing Director explained Circular Resolution further with the various annexures handed out.

WD Copland said that Cue needed to get back to the basics and that the Board has had shocks and that the CEO of a publiccompany must beaccountable. He detailed four issues which he said had shocked the Board:

1. Proposed handling of Wirabuana $2.1 million payment2. Offer of Todd directorship3. Bali holiday costs4. Real estate costsPCR Hatton said it must come down to leadership and public perception; that the Managing Director's behaviour sets thescene in the Jakarta office.

WD Copland outlined his concerns over the 25th July letter to Todd Energy.

Managing Director reiterated that he was not sure that the Board minutes are a full record. WD Copland commented that allBoard members had signedthe minutes as a true record.

WD Copland raised the proposed manner of payment to Wirabuana where the Managing Director wished to pay $2.1 millionto three individuals when wehad a contract with Wirabuana itself. WD Copland expressed concern that for actions by the Board that money could havebeen illegally paid to theindividuals.

The Managing Director admitted that the first assignment was flawed and said the matter had been discussed and referred tothe Chairman for legaladvice and had been subsequently processed in a proper manner.

WD Copland requested that from today we get a total commitment to total transparency, ethics and honesty.

The Managing Director committed to keep the Board fully informed and is wholly supportive of honesty, ethics andtransparency.

PCR Hatton stated the main function of Managing Director is to keep the Board very involved in all information that is requiredby the Board to make thdecisions and that the Managing Director needs to understand what Board needs to know to allow it to make informeddecisions.

PCR Hatton stated the Board is trying to keep itself informed on a part time basis, and that this is very difficult.

Circular Resolutions:

General discussion was held on the Wirabuana Carry. Board were concerned about the nature of the carry including officeexpenses and notexploration costs.

WD Copland raised the procedure for approval of the Sampang deal which was in the form of a Circular Resolution.

WD Copland stated that full transparency is the answer to getting the right relationship between Managing Director and theBoard. He asked whether wecan shut down the Wirabuana Carry on 1 January 1998 if a successful farm out arrangement has not been done.

The Managing Director advised that the Wirabuana Joint Venture has been put on an absolute minimum cost and commitmentbasis. A shut down inJanuary is possible but not desirable as the minimum three year work programme needs to be fulfilled.

Managing Director said he was not trying to mislead the Board.

PCR Hatton replied he did not believe that the Managing Director deliberately misled the Board.

PCR Hatton discussed his requirement to be provided with information detailing the liabilities and rewards for approvalssought.

PCR Hatton stated that it was not good enough to say the information was provided as the Board has said that it was notclearly set out in the casesdiscussed.

Chairman stated the Board want to be informed. Over information will not suffice. The Board wish to see an executivesummary for all approvals soughtwith an analysis of outcomes and pros and cons.

Managing Director said this has been done for the past 3 – 4 years, but over the past 3 months the Company has becomemore complex and this hascreated difficulties for the Directors.

Managing Director stated that he will be totally responsive to what ever the requirements of the Board are.

WD Copland stressed that all dealings between the Managing Director and the Board need to be totally transparent and thaton this basis we can nowmove forward.

B Wood explained the need for Board proposals to contain the "essence of the information".

R Kaul agreed and requested a summary statement that he can understand. He requested commitments made only after theBoard has approved thedeal.

9(b) Operations Philosophy

WD Copland asked as to how management will apply this culture as expressed by the Board into the Company's operations.

WD Copland asked how do we deal with Indonesian partners.

The Managing Director assured the Board that the operation in Indonesia is absolutely clean.

PCR Hatton requested a Board instruction that there can be no deviation under any circumstances.

B Wood suggested a board statement on bribery with anyone taking part will be reported to the appropriate Indonesian andAustralian authorities.Instant dismissal would be automatic.

WD Copland agreed.

Board approved.

Chairman to write memo to all staff. Memo to be circulated to the board prior to distribution to staff.

The Managing Director drew at Board's attention to the letter dated 5 September, page number 2 on Board paper where fivebullet points on companyexpenditure philosophy were set out.

These were:

­ Expenditure has to be within budget­ They have to be in line with Pertamina approved allowance guidelines­ They have to conform with the strictest bid procedures­ They have to be absolutely necessary­ The objective is to come in under budget; equal to the budget is not necessarily acceptable.1. Managing Directors ReportManaging Director stated that his opinions and views on the individual agenda items were provided in writing and hesuggested that his report can berevisited as the agenda progress. The Board disagreed and decided to work through the Managing Director'' report first.

PCR Hatton questioned as why Cue only raised $25 million and not $30 million. Managing Director replied it was an ANZdecision.

B Wood stated that it was his view that Cue are cash short even with two raisings and that Cue needs to include allcommitments in the forecast e.g.Yolla's two wells e.g. One Yolla well has now appeared on the budget, but this expenditure was previously not considered inthe funding requirements.

B Wood raised the matter of the ANZ analysis maybe not being in line with the true position of the Company. Having not readthe ANZ report hedidn't know but it concerned him and he raised the question of a possible obligation on Cue's part to set the record straight, ifit needed to be. TheManaging Director responded that Cue could not be expected to review all reports and rectify every opinion that is put out onthe Company.

WD Copland stated that ANZ have told him that $12 million will cover Cue's exploration commitments.

PCR Hatton stated that our future commitments over the next two years is greater than the present capacity to pay.

2. Cashflow Projections

The Managing Director had detailed two scenarios in the Board papers. He advocated Scenario 2 which prescribes thedivestment of 10 points inboth Tanjung Jabung and Jambi Merang. This would see the cashflow shortfall of approximately $4.5 million by 30 June 1998for Scenario 1reduced to a shortfall of $1.0 million by December 1998. As Mr Wood had had suggested before the Board meeting that thisscenario might not gofar enough the Managing Director had prepared a third scenario which saw 20 points of Cue's 50 points in Jambi Merangdivested. The ManagingDirector was of the opinion this would be too conservative an approach and furthermore pointed out this scenario would not be

to the liking ofinvestors.

Mr Hatton took issue with the projected price for the equity divestment plan ($5 million for 20 points). The Managing Directoradvised this was aconservative worst case scenario. Mr Hatton made the point that once these things were committed to paper a better deal wasunlikely to be achieved.

A. Indonesian FarmoutsPCR Hatton – Made the point that any sell down of Jambi Merang must first go to the Board for approval, before it goes to themarket.

WD Copland stated that the Board do not know where projects or the farmouts stand. The Managing Director referred to theBoard papers (5.1 RJCmemos to FAJ:)

"Farmout Status" and "Tanjung Jabung Farmout strategy" said that a number of companies had been invited to meet with Cueand had shown interest.WD Copland asked on what authority has this been done.

The Managing Director responded that a number of discussions with farmin parties centred on Tanjung Jabung (to farmoutWirabuana's interest)and that this had led to certain parties inquiring about Jambi Merang. Particularly the discussions with Asamera and Kvaernerwere of strategicimportance to achieve access to gas markets. Talks with Kvaerner were about an equity swap; gas for power. These were notCompanycommitments but exploratory discussions.

PCR Hatton asked about the position of operationship. He stated that all farmout options must be laid out and that the Boardwould then consider alloptions before making a decision.

The Board will decide who will go to market to sell or farmout any of the properties and the Board will approve a budget for theprocess.

B Wood stated it was important that the farmout needs to be structured along the lines of the Saga sale and that all farmoutbrochures need to bereviewed and approved by the Board.

WD Copland asked whether Cue should to maintain Operationship?

Managing Director stated that he was firmly of the opinion that we need to stay in Indonesia as an Operator.

B Wood raised again how the company intends to go forward with farmout offers and suggested that the Board should seekindependent advice beforeapproving any farmout.

WD Copland and PCR Hatton were in favour of an independent analysis of any farmouts or sales. The Managing Directorthought it bizarre to havean independent review of a farmout document.

Managing Director asked again the Board its preference of divesting 10% or 20% of Cue's interest into Jambi Merang keepingin mind that Cue is notyet the owner.

B Wood suggested that we approach Pertamina and delay two wells into 1999 and commit to only one well in 1998. Thiswould allow Cue to drill a wellin Jambi Merang at 50% (100%) and give the shareholders a ride in the well.

This is predicated on acceptance by Pertamina that the permit be extended by twelve months with Cue committing to twowells in 1999 and one well in1998.

The Managing Director advised that for logistical and technical reasons two wells had to be drilled to appraise Pulau Gading.Going down to a onewell programme would not be in line with commitments made to investors and Pertamina. Proposing to drill one well in 1998 inJambi Merang would,according to the Managing Director, fundamentally endanger continued title in Jambi Merang, the Company's major asset, andbreak faith with whathas been promised to investors.

WD Copland proposed the following. That Cue;

1. Determine a value of 10 points and 20 points farmouts of Jambi Merang by December 1997 with Operatorship beingoffered.2. Obtain feed back from Pertamina by December 1997 on proposal to extend permit by 12 months and drill two wells in 1999with one well in

1998 and possible work over.3. Determine a value for a 10% farmout of Tanjung Jabung by December 1997.WD Copland proposed farmout brochures would be prepared for Board approval before being issued and Board to also seekindependent advice onthe farmouts.

The Board approved this proposal.

The Managing Director raised the issue of the upcoming budget meeting with Pertamina. The Board agreed to go along with abudget for 1998 for twowells in Pulau Gading and one optional workover of Pulau Gading­1, with the Managing Director undertaking to investigatemaking the second welloptional.

PCR Hatton stated that he was not comfortable with Cue's approach to overhead expenditure and did not believe that theproposed Indonesian budgetis the absolute minimum. PCR Hatton would only approve the absolute minimum budget that would get the job done.

PCR Hatton suggested 10% reduction. Managing Director stated that was impossible. PCR Hatton then suggested a 5%reduction.

The Board approved the Indonesian operation budget subject to a 5% reduction.

PCR Hatton stated that the Managing Director will be judged on meeting the overhead budget.

The Board approved the requested budget for the preparation of the farmout document for the Tanjung Jabung PSC.

The meeting broke up for 15 minutes.

4. Expenditure Control and Monitoring IndonesiaA new Chart of Accounts were distributed to PCR Hatton.

PCR Hatton was requested to review and to advise Board. He said he will discuss with Andrew Knox.

WD Copland suggested accounts could be displayed on line in Melbourne. He asked how the consolidation will be done?Managing Director statedthat both offices will have the same software and it was the intention to have e­mail between offices.

R Kaul believed that suggested format was the structure that the Audit Committee was looking for.

R Kaul and PCR Hatton will come back to Board and advise.

The Managing Director stated that there is a Section that contains Policies and Procedures. R Kaul and PCR Hatton willreview and Audit Committeewill advise. R Kaul & PCR Hatton to consider the approvals necessary to hire new staff.

B. Farm out YollaThe Managing Director advised that Boral were contacted. Premier not interested in more equity at the moment. Difficult tofarmout small percentageto new participants.

Managing Director recommended funding 14% of first well which could spud first quarter '98.

Board resolved to wait till Christmas to see how farmout of the Indonesia properties is received. Would be prepared to fundthe Yolla­2 well at 14% ifnecessary.

The Managing Director stated that Yolla had the potential to be a company maker and that, in his opinion it had relativelylower appraisal riskcompared with Pulau Gading.

6. Saga Settlement

The transaction is proceeding with loans settlement due in October. Complex issue. Arthur Robinson & Hedderwicks draftingBoard Resolution toempower Managing Director to sign settlement documents.

Chairman advised of the possibility that it may be necessary to get some shareholder approvals.

Managing Director advised the Tokai loan is only secured against Gelam development.

7. Capital Raisings

Chairman advised that the Company had finalised "best endeavours" letter with ANZ, backed up by letter from NPF and ToddEnergy.

Managing Director thought ANZ's performance was poor.

WD Copland stated that ANZ think that the Managing Director's communications with New York and Managing Director'sunavailability was a bigissue.

PCR Hatton felt it was necessary to review Cue's performance with the capital raising. At September 3 Board meeting $15million was said to beavailable. The next day a letter was sent to Todd Energy that was contrary to the Board's approval. PCR Hatton stated that hedid not appreciatebeing backed into a corner and he did not wish to have that anxiety again. He also stated that we can not wait till the end thenbe forced to rush.

WD Copland felt the Board was blackmailed into accepting a Board seat for Todd.

WD Copland also stated that NPF had to save the deal at the end of the day.

Managing Director explain timing.

PCR Hatton stated that it was his view that capital raisings were panic driven. WE put ourselves under pressure. A companycan not be run likethat. A company can not be run on a Just In Time Basis. It was overall a dreadful performance.

The Chairman stated Cue was not vigilant enough with its cash forecasting and should maintain a rolling two year cashforecast.

PCR Hatton emphasised the situation cannot be forgotten and said that it is an absolute duty of the Board to look back andtake stock.

8. Option Conversion (30 June 1998)

The Chairman stated that Cue needs to now consider the conversion of the 30 June 1998 options. All possibilities need to beconsidered. Fallback arrangements need to be developed should the options not be converted and methods to ensure conversion need to beconsolidated.

WD Copland pointed out the share price needs to be 33 cents to have the options converted.

R Kaul asked as to who should do Road Shows. He believed that the appeal needs to be made to a wider series of investors.ANZ could not attractits own domestic desk. R Kaul advised that NPF has sold its options.

Managing Director advised HSBC is buying 2½% going to 5% of Cue.

WD Copland said we need to drill a well. Brokers wish to hear that a well as spudded. Pulau Gading #2 needs to be spuddedbefore the options aredue to be considered.

Managing Director said the wet season will control the start of the drilling campaign.

10. Structure & Location of Senior Management

WD Copland asked how do we restructure the Company and also enquired as to where Bob Coppin will go.?

The Managing Director stated the following had been considered:

1. Close Melbourne – Move all to Indonesia2. Bob Coppin stays in Indonesia3. Exchange Andrew Adams and Bob Coppin4. Transfer Bob Coppin back to Australia and appoint a new Exploration Manager in Indonesia.Managing Director will try and convince Bob Coppin to stay in Indonesia

In relation to option one PCR Hatton analysed the cost of Melbourne office. He pointed out there would not be a large savingby closing Melbourne –Company may save $30,000 to $100,000.

PCR Hatton suggested there would be insufficient work in Australia for Bob Coppin under option four.

The meeting confirmation that the budget approval for administration is for 1998 & 1997 subject to change if we can reducework commitments inIndonesia.

11. Management Performance

Managing Director stated that he was disappointed and dismayed today over lack of confidence shown by the Board in Cuemanagement's ability to

farmout an interest in Tanjung Jabung. That a few recent problems have totally overwhelmed the hard work, the success andthe commitment shown.He felt battered and bruised by the Board who had expressed absolutely no consideration for past achievements.

The Chairman complimented Mr Jacobs for having made the decisive and difficult decision to transfer to Jakarta and in doingso to dislocate his andthe lives of his family at short notice.

The Managing Director stated that he was concerned at being told to go to Pertamina to seek a reduction of work program. Hestated that this willendanger the Company.

David Copland questioned how does this fit with the plan to cease funding of Wirabuana before the commitment is met. Thisissue remains thesame.

PCR Hatton stated the board is nervous. The Tanjung Jabung commitment over three years is US$15.2 million with thepotential of having to paycash in case the minimum work programme was not fulfilled. He did not understand this was the case. He emphasised theneed of a CEO to presentinformation in a clear precise fashion. He stated that this problem had hit him like a ton of bricks today.

The Managing Director stated that Pertamina would not move to express liability. He stated that such action wasunprecedented.

WD Copland stressed that he wanted an exemplary CEO.

Some discussion took place summarising CEO tasks".

We set out these Minutes in detail particularly so the roles of Messrs Copland and Kaul can be seen as well as the problemsconfronting Cue Energy. Theyportray an interesting and paradoxical contrast to the way Mr Copland and Mr Kaul were managing NPF.

Cue's financing problems / South East Asian Financial Crisis

A revised 1998 budget (Commission Document 124B to be tendered as document CU691­694) presented on 2 Septemberforecasted a cash shortfallin June 1998 of A$1.9 million based on an assumed exchange rate of Australian dollar to the US dollar of 0.75 and receipt ofA$16 million from the exerciseof 65 million listed options in June 1998.

It appears from a inter­company memorandum dated 24 September 1997, (to be tendered as document CU695 /Commission Document 124B) that by24 September 1997, the Tokai Bank facility had yet to be approved as the assignment of the PSC by SAGA to Cue had notbeen approved by Pertamina(the Indonesian State's Oil and Gas entity).

27 October 1997, saw a significant downward correction on world stock markets attributed to the economic downturn in SouthEast Asia. The period alsosaw a general fall in the world­wide prices of resources and consequently both factors had a adverse effect on the share priceof Cue which fell from 24cents at close of September 1997 to 15 cents close of December 1997 (tendered document CU393). According to Cue'sManaging Director's Reportdated 17 December 1997 found in Commission Document 124B, a number of Cue's shareholders instigated a sell down ofCue's shares in response tothe company's exposure to Asia (Commission Document 124B to be tendered as Documents CU696­697.

With the final settlement date of 31 December 1997 in respect of the SAGA transaction approaching, the approvals fromPertamina and the IndonesianGovernment were still outstanding. This together with the stock market turbulence and the poor performance of the company'sshare price it becameapparent to Cue that it was unlikely that the option holders would be able to exercise the 30 June 1998 options. These optionswere forecasted to provideCue with A$16 million of much needed equity capital (Commission Document 124B to be tendered as Documents CU691­694.

As a consequence of the anticipated lack of capital, Cue approached SAGA informing them of the problems faced by Cue andtabled an offer to completethe acquisition of SAGA's in a reduced form (Commission Document 124C to be tendered as Documents CU698­699). Thiswas rejected by SAGAon the basis that SAGA had from the outset clearly communicated that its strategy in selling was to exit Indonesia with noresidual interests (CommissionDocument 124C to be tendered as document CU700.

It is apparent that despite this initial rejection, extensive negotiations continued between Cue and SAGA in November 1997and this culminated in amemorandum of understanding ("MoU") being signed. The MoU (Commission Document 124B) to be tendered asDocuments CU701­703 extendedthe settlement date from 31 December 1997 to 31 March 1998 and also included the agreement of SAGA to underwriteUS$6.3 million of Cue's 30 June1998 options in the event that the options did not convert. In addition the MoU required Cue to make a non­refundablepayment of US$2.5 million.

The Tokai Bank loan was approved on 31 October 1997 (Commission Document 124B to be tendered as documentCU704).

NPF Purchase of 4,880,000 shares – November 1997

Cue A$12 million share placement

As stated earlier, given that significant capital expenditure was required for the commencement of the Pulau Gading appraisalprogramme, the Cue Boardresolved at the 23 July 1997 meeting to raise equity of A$10 million through a share placement. Subsequently at the CueBoard meeting of 3 September1997, the Board resolved to issue equity of A$15 million (tendered as document CU705­706).

The NPF Board was informed of the placement at the 22 August 1997 Board meeting. The Board minutes record(Commission Document 49 to betendered as document CU707) the following:

"Discussions ensued amongst the Trustees regarding the operations of Cue. The following points were noted during thediscussions:­

· Cue were moving into Indonesia· Cue still needs cash of K10 million in equity and K10 to K12 million to be farmed in from outside source.· NPF has 13 million put options left which are due to expire in June 1998. NPF is slowly selling off its options at around 0.08cents per share.· NPF's exposure in Cue is around 20% and this will reduce to around 15% when options are exercised in June 1998".A review of the Board papers (Commission Document 21) for this meeting shows that no other information on Cue wasincluded in the Papers.

The Board Minutes provide us with limited insight into what was discussed by the Trustees but it is of note that the Minister forFinance concernsexpressed when granting his revised approval dated 16 June 1997 for NPF's investment / underwriting of Cue's shareplacement for SAGA i.e.

­ Over exposure to resource stocks­ Over exposure to equities­ Apparent conflict of interest of Mr Copland were not addressed at its meeting.

The news from Mr Kaul and Mr Copland concerning Cue's further need for equity funds so soon after Cue's share placementin May and June 1997 ofA$8 million and A$ 25 million was also not questioned.

However it soon was apparent that Cue's intended share placement of A$15 million would not be possible as the issue priceof 25 cents was at a premiumto the prevailing quoted share price. As a consequence the share placement was revised downwards to A$12 million(Commission Document 124C tobe tendered as document CU708­709).

As a result of the A$12 million to be placed, NPF was requested to meet a shortfall which initially was reported as A$450,000(Commission Document124C to be tendered as Document CU710­712). Mr Kaul replied by way of a fax as follows:­

"NPF will be willing to firmly underwrite $450,000 subject to the following conditions:­

1. NPF will receive a fee of 4%2. Todd is able to place $6.0 million3. 3% is payable when the $450,000 is not called upon4. $450,000 will be the amount firmly underwritten and no lesser amount will be acceptableI do not anticipate any difficulties having my Board approve this offer based on the above terms.

I await your response".

We note that a courtesy copy of Mr Kaul's fax was marked as sent to Mr Copland. A copy of Mr Kaul's fax taken fromCommission Document 334 will

be tendered as document CU713.

There is no evidence to suggest that Mr Kaul subsequently had sought or obtained the consent of the Trustees.

It would seem that there was a shortfall in the placement of A$1 million and NPF was requested by the Chairman of Cue, MrAlbers to meet this shortfall(Commission Document 124C to be tendered as Document CU714. A fax in the name of Mr Kaul addressed to Mr Albers ofCue stated that NPFwould accept the shortfall for a fee of 4% and subject to NPF Board approval (Commission Document 124C to be tenderedas Document CU715).

By 16 September 1997 ANZ Securities, withdrew as underwriters to the share placement but were retained proceed on a bestendeavours basis inrespect of A$7 million of the placement (Commission Document 124C to be tendered as Document CU716­721). During theshare placement MrSteven Macaw of ANZ Securities in Melbourne sought from Mr Copland an indication of NPF's position with regard tosubscribing (CommissionDocument 722 / to be tendered Documents CU673).

It is evident from a fax dated 17 September 1997 sent by Mr Kaul to Mr Steven Macaw of ANZ Securities, Melbourne found inCommission Document334 that Mr Kaul had been contacted by Mr Copland concerning ANZ Securities enquiry as to NPF's position with regard tounder­writing this shareplacement. The fax indicates that Mr Kaul, subsequent to discussions with Mr Copland, informed Mr Macaw that NPF wouldsub­underwrite A$1.45 millionfor a fee of 4%. A copy of the fax will be tendered Document CU722.

A stock market release dated 21 November 1997 indicated that subscription to Cue's share placement of A$12 million hadbeen successful. The releasenoted that NPF had been allotted 4,880,000 ordinary shares at A$25 cents per share ( tendered document CU673).

Board Approval / Investment Appraisal – 4,880,000 ordinary shares in Cue

The Board Minute record of Board Meetings (Commission Document [ ]) and the monthly management reports(Commission Document [ ]) includes nothingsubstantive in respect of NPF's appraisal of the purchase of a further 4,880,000 shares in Cue.

As we have stated NPF (as evidenced by Mr Kaul's and Mr Copland's discussions with ANZ Securities) were clearlycontemplating further investment byway of under­writing Cue's A$12 million share placement during the course of September 1997. Mr Kaul and Mr Coplandwould therefore have had theopportunity to request approval from the Trustees at the 109th NPF Board of Trustees meeting held on 28 October 1997concerning NPF's role in theunderwriting of the A$12 million. The Managing Director's report in the Board papers did not make mention to the placement(Commission Document 22to be tendered as document CU723).

The minutes for the 109th Trustee meeting (Commission Document 49 states:­

"The meeting was informed that the bid ask price for Cue's shares as of today is 0.14 cents to sell and 0.12 cents to buy. Themeeting noted that thiswill adversely affect the Jambi Merang acquisition. The current instability on the stock market will mean greater uncertainty asto whether Cue will be ina position to complete the acquisition before 31 December 1997 (Drop Dead Date)".

An extract of the minute will be tendered as document CU724.

The Board minutes record that the Board of Trustees did not approve any further investment in Cue at this meeting.

We are unable to determine at this stage as to when NPF became obligated to purchase the shares in Cue and in addition wehave yet to obtain a copy ofNPF's sub­underwriting agreement in respect of this share placement. Our enquiries in this regard are continuing.

It is pertinent to note that the Cue shares for this placement were priced at 25 cents per share. At this time this was at asignificant premium to market.

This fact was never as far as we can determine disclosed to the trustees nor was any independent investment advice obtainedby NPF management orthe Trustees concerning this investment where NPF was participating in a placement at a premium to the market.

The Trustees were first informed of the acquisition of the additional shares in Cue in the Board Papers for the 110th meeting(Commission Document 23)where it was reported that :­

"Cues share price have weaken to 13 cents, and the short term outlook for the stock is uncertain.

The fundamental assets have not changed and the long term outlook looks reasonable, subject to any exploration upside.

The A$12 million for the purchase of Jambi Merang PSC has been completed and we are expecting a underwriting fee of 4%for A$1.45 million, althoughwe paid A$1.22 million due to additional placement in US by ANZ Securities."

The minutes for this meeting in respect of Cue record the following : ­

"The Chairman informed the meeting of the highlights of Cue's operations since the last Board meeting:­

i. successful raising of US$12 million to buy Saga Petroleum Indonesia's 50% interest in the Jambi Merang PSC block inSouth Sumatra;ii. 65,538,430 options are exercisable at a price of AUD25 cents on or before 30 June 1998 and it was unlikely these would beexercised with theshare price currently at AUD 34 cents.iii. Continuing problems with the manner in which the Managing Director, Frank Jacobs, manages Cue and the likelihood thatthere may have tobe management changes over the next few months.iv. Todd Petroleum's take up of AUD$5 million equity in Cue at AUD 25 cents."An extract of the records of the meeting and Board paper (taken from Commission Document 49 and 23 respectively) will betendered as Documents CU725­726.

With regard to NPF's investment appraisal and Board decision process the following observations are made :­

As can be seen the Board of Trustees made no adverse mention concerning the unapproved investments.It is apparent, as we will detail in a moment that NPF breached Section 61 of the PFMA with regard to this investment.No independent investment advice was sought

Finance Department review and Ministerial approval – November placement

The participation of NPF in this placement was according to NPF's accounting records (see table summary) resulted in aninvestment cost to NPF ofA$1,220,000. Accordingly Ministerial approval under Section 61 of the PFMA was required.

A review of files submitted to the Commission by the Department of Finance which can be found in Commission Documents5A – 5E includes noreference to NPF seeking Ministerial approval for this transaction. We also cannot find any other material in any of theCommission Documents inspectedthat would suggest any such approval was requested.

This incident further highlights the weak control and corporate governance issues revealed in earlier openings.

On Market purchases of 1,970,000 shares in Cue– December 1997

Investment appraisal and Board approval

It is apparent from an inspection of NPF's investment statement (Wilson HTM Limited) which can be found in CommissionDocument 552 that NPFpurchased "on­market"a parcel of 1 million shares and a parcel of 970,000 ordinary shares in Cue on 30th and 31st ofDecember 1997 respectively forA$132,700 and A$139,389 respectively.

Again, judging by the minute record of NPF Board Trustee meetings these investments were made without the expresspermission of the Board ofTrustees. At this stage we have been unable to discover any material to confirm who initiated these transactions. In this regardas we have stated inearlier hearings we are currently in the process of obtaining documents held at Wilson HTM through the assistance of ASICand will advise in a latehearing on this matter.

Judging by what was recorded in the minutes found in Commission Document 49, it appears that the Trustees were neverexplicitly advised of thesepurchases. It should be noted that as these investments were below the K1 million threshold set, Ministerial approval was notrequired.

It is also noteworthy that the share price as evidenced by these purchases was it would seem pushed up from AUD13.27cents on 30 December 1997 toAUD14.37 cents on 31 December 1997. This rise of 1.1 cents per share overall had a significant impact on the value of NPF'sshareholding in Cue andconsequently increased NPF's reported profits in 1997 for management bonus purposes.

Cue Board resolves to terminate the SPA with SAGA – February 1998

In the period subsequent to the signing of the MoU, it was considered by Cue and its advisers that the deteriorating economicconditions in Indonesia madea further equity placement by Cue to fund the appraisal programme of Jambi Merang, an impossible task. The directorsresolved to terminate the SPA at aCue Board meeting held 18 February 1998 (Commission Document 124B to be tendered as document CU729­730). Thereasons for not proceedingwith the SAGA acquisition were presented in a letter to SAGA dated 24 February 1998 (Commission Document 642C to betendered as documentCU731­736). Relevant extracts from the text of this letter read:­

"Dear Mr Aanstad

Re: Jambi Merang

Please be advised that the Jambi Merang Sales and Purchase Agreement of 9 May 1997 has come to an end because theconditions to which thatagreement were subject have not been fulfilled by the times specified.

While we endeavoured to come to amending agreements, as you know, the preconditions were never fulfilled. We are notreneging on any agreement, asour existing agreement is already at an end.

In the view of the very substantial commitment that we have already made, it is solely on this basis that we will attempt to finda resolution with you.Accordingly, we would suggest that the prime purpose of our discussions needs to be on constructing a new agreement uponwhich we can moveforward. It is in this background that we put forward these proposals, in order to seek to accommodate our respectiveobjectives.

I have contacted our directors with your suggestion for the teleconference call. They are universally opposed to such aproposal, the consensus beingthat videoconferencing does not work. Furthermore, at this stage there is very little to discuss. It is not hard to imagine thatsuch a meeting coulddegenerate into recrimination and be counter­productive to the very end which we both seek, which is a satisfactory outcome.

It is now more than four months since we met in Singapore to work out a variation to the original Jambi Merang Agreement.Despite having paid over anadditional $2.5 million in anticipation of formalisation, we have been unable to conclude with you a formal amendment to theAgreement as required bythe MOU, and we were as far away as ever from reaching agreement with respect to the Share Subscription Agreement. Inany case, events have clearlypassed us by with respect to the Share Subscription Agreement, with the added burden of the proposed Share PurchaseAgreement being drafted in a farmore onerous and restrictive way than the terms agreed in Singapore. The MOU signed in Singapore foresaw variousarrangements in return for thepayment of further deposit/monies and an extension beyond 31 December 1997, at which time the Jambi Merang Agreementlapsed through the effluxionof time.

Delays with settlement have meant that the 1998 drilling program cannot be committed to – the result being that the end of theexploration phase of theJambi Merang licence period (February 1999) is likely to arrive with no wells drilled.

We have incurred millions of dollars in expenditures in Indonesia in anticipation of a settlement of these matters, expectedoriginally in July 1997. It isnow almost 12 months since we lodged our bid for Jambi Merang.

These expenditures are now at risk that there is no agreement and no certainty that we will settle with Saga in any reasonabletime in which to allow thefulfilment of a drilling program on Pulau Gading that will satisfy the licence conditions and enable a renewal of the JambiMerang tenement.

Our lenders, Tokai, are becoming increasingly nervous as a result of the delays and the deteriorating situation in Indonesia.

The situation in Indonesia is a leading news item in Australia every day where the situation seems to deteriorate daily. Thechance of a capital raisingfor the purpose of funding operations in Indonesia would be laughed at by the market place in Australia.

As you are aware as a result of our meeting in Singapore mid­November 1997, the likelihood of the Company achieving fullconversion of its 30 JuneOptions to raise (AUD)$16.3 million was low. Indeed, given the very serious deterioration in Indonesia since then, the ability toraise any funds based onour Indonesia venture is now near negligible. Indeed, an attempt to do so would be treated with distain and woulddemonstrate naivety in the extreme. Therefore, the formula we attempted to work out in Singapore is no longer workable.

Our cashflow requirements, principally involving settlement of the balance of the purchase monies plus adjustments (US$32million) together with thedrilling program of 2 wells and a workover on the Pulau Gading projects (US)$12 million) require an aggregate expenditure onour part of approximatelyUS$44 million. Of this amount US$10,000,000 may be capable of being drawn down from Tokai. An initial drawdown ofUS$16.3 million had previouslybeen projected from Tokai. However, US$6.3 million of this was to be repaid out of the 30 June 1998 option exerciseproceeds. Clearly this is notpossible and with the obvious inability to raise substantial equity monies for Indonesian ventures in Australia the drawing downof these funds becomesan impossibility. Incidientally, US$44 million equates to AUD$66 million and NZ$73 million based on the currentUS$/AUD$/NZ$ exchange rates.

I believe that you have copies of our 1997 Annual Report. The Financial Statements are expressed in New Zealand dollars,which is a currency withapproximately 11% less worth than the Australian dollar. The current exchange rate between the US$/NZ$ is approximately60c (US) buys $1.00 (NZ).

Since preparation of those Financial Statements we have issued further security raising a gross (AUD)$12 million. However,offsetting this we have paida further US$2.5 million to Saga as well as continued funding of the Indonesia office (a heavy expense).

Given that the aggregate of the balance of the Jambi Merang settlement monies and the drilling program required by February1999 on Jambi Merangwill consume US$39 million (the equivalent of NZ$65 million), we hope you can appreciate the situation we face.

We remain confident that Tokai will allow us to drawdown an aggregate US$10 million of this amount.

We confirm the overriding desire on the part of the directors for our Company to be able to continue as a going concern, tomeet our commitments and tobe able to do so for a reasonably foreseeable period. At the same time, our directors are concerned for their own personalsituation, given the heavyonus placed on directors under the Companies Act, 1993. The question of solvency looms large in the minds of directors (whoare personally liable). Inthis context they are prepared to negotiate a settlement scenario and to complete on such a basis.

I can't impress upon you enough for the absolute need for an aggregate US$15 million to be deferred from the finalsettlement.

Last week I put forward a proposal which would see the progressive payments of this amount. I have faxed an outline of theproposal and spoken to themembers of our Board with respect to this proposal. As I indicated to you they are not prepared to risk a situation wherebythey might becomepersonally responsible for the debts of the Company. WE need to make an arrangement which replaces the AUD$16.3 millionwhich we might havereceived from the exercise of the 30 June 1998 Options which has always been an integral part of our financial plans.

The Board can see their way forward, provided that an appropriate formula can be devised and agreed which would seeUS$15 million of the PurchasePrice/Adjustment deferred and payable upon certain stated events, each of which would clearly provide value and create themeans to raise additionalcapital.

With respect to securing the outstanding, I suggest that this be done by way of a second ranking charge after Tokai, againstthe Jambi Merang tenement(ex Gelam). We believe that it will be possible to achieve Tokai's consent to such an arrangement.

Under our Constitution, and as a result of the rules of both the New Zealand Stock Exchange and Australian Stock Exchange,we cannot issue furthershares amounting to 5% or more of our present issued capital without seeking the approval of our shareholders in GeneralMeeting. Such an importantstep would involve reports from independent experts authorised by the New Zealand Stock Exchange, scrutiny by theSurveillance Panel of the NewZealand Stock Exchange and of the relevant Listing Officer of the Australian Stock Exchange, preparation, printing anddistribution of a detailedmemorandum to accompany notice of special business at a general meeting of shareholders, (with 28 days notice toshareholders of such a meeting). From past experience the whole process would take not less than 2 months from the date of the first approach to NZSE andASX to the date of approval(if any) by shareholders. If such a transaction were to be seen as the passing of control by either the NZSE or the ASX thenthe amount of supportingdetail required would be overwhelming.

Over the past 9 months we have raised a gross amount of (AUD)$37 million by way of equity issues; firstly with an issue of(AUD)23c and then at(AUD)25c (only in October 1997). Since then as the extraordinary events in Asia, and Indonesia in particular, have unfolded,the market value of our

shares has fallen from a peak of (AUD)30c to (AUD)11c today. If the imponderables of Indonesia can be put behind us, we areconfident of our shareprice retracing to its former upper levels over a reasonable period of time. Investors, afraid of the situation in Indonesia, havedumped our shares inresponse to the collapse of the Indonesian currency.

Our Board would consider an equity issue of an amount equal to 4.99% of the Company's present capital at (AUD)25c.

Knut, if we are going to make this transaction work, we will have to stop the shadow boxing and get down to specifics. Sagawill have to acknowledgethe extraordinary circumstances in which we both find ourselves by making a decision to share some of the risks with us. Asmy directors have said surelySaga must be prepared to take such a risk if the assets to be purchased are as good as they say they are".

In response to this, SAGA faxed a without prejudice fax dated 25 February 1998 (Commission Document 642C to betendered as DocumentsCU737­738. Saga's reply states:­

"We refer to your faxed letter dated 25 February 1998. It is quite clear that your letter forms part of a series of withoutprejudice correspondence and onthe basis it expressly refers to our previous without prejudice correspondence, we assume that it was intended to be sent on awithout prejudice basis.Accordingly, please confirm that this is the case. In the interim, we expressly reserve our position and rights.

However, Saga does not wish to enter into any further legal debate at this stage. Saga recognises the financial difficulty Cuefinds itself in and thepotential shortfall in 1998 as a result of the likely non­exercise of its listed June 1998 options. Whilst this should not be Saga'sconcern, we areprepared to discuss with you alternative proposals in order to bring to a conclusion the sale of Saga's interest in Jambi Merangto Cue.

The proposals outlined by you thus far are, with respect, very unattractive to Saga. As you are aware, it has been Saga's clearobjective throughout thedivestment process to exit Indonesia completely. Your proposal that Saga enters into a joint venture with Cue is thereforeunacceptable. This has beenmade clear in the past and Saga's position has not changed. Your alternative position that the purchase consideration bedeferred pending the fulfilmentof certain operational milestones is also unacceptable to Saga. A deal was struck whereby Cue would pay Saga in full uponcompletion and we see noreason why you should seek to depart from this.

Recognising your 1998 shortfall, Saga is prepared to consider a proposal whereby Saga may make a financial contribution byway of equity. This couldbe done in a way by which Saga underwrites a rights issue. We are aware of the fact that under New Zealand law (andAustralian law) the 10% threshold(or 5%, if Cue has already issued shares equal to 5%) on issues of new shares does not apply where the shares are offeredpro rata to existingshareholders, giving the existing shareholders the possibility of not being diluted. In such a situation, the board has inherentpower to proceed with theshare issue and there is no need for an EGM. The exact term of the rights issue and the underwriting would need to beagreed between Saga and Cue,but Saga would expect to take such shares by reference to the current market price. This is clearly best done in face to facediscussions, together withadvisers as appropriate. On the basis that a solution can be reached along these lines, we are prepared to meet you inSingapore at the earliestpossible date".

Writ of Summons against Cue issued in the High Court Justice of England – August 1998

Negotiations between the Cue and SAGA continued throughout February to early April 1998 to find a way forward. On 9 April1998, Cue having obtainedlegal advice (Commission Document 642C to be tendered as document CU739­741) wrote to SAGA advising that in thecurrent economic conditionsthe ability to extract economic value from Jambi Merang would be severely hampered and it would not be in the interest of theshareholders to proceedwith the acquisition (Commission Document 642C to be tendered as Documents CU742­744).

In response, SAGA sought legal action in the High Court of Justice in England and a Writ of Summons was issued againstCue on 13 August 1998(Commission Document 642C to be tendered as Documents CU745­746. Cue served defence and counterclaim on SAGAon 7 December 1998(Commission Document 642C to be tendered as Documents CU747­748.

In the meantime, the Cue Board of Directors terminated the company's Managing Director, Mr Jacobs at the 18 February 1998Cue Board meeting

(Commission Document 124B to be tendered as Documents CU749­750.

Investments in Cue through 1998

Background events

The 1998 year for Cue was dominated by the effects of a deteriorating Indonesian economy, the ongoing SAGA litigation anda languishing share price ofCue (tendered document CU393 NPF's investment holding in Cue through out 1998 remained at 20% of the company'sissued share capital.

There were however several important events which occurred during 1998 material to NPF's investment in Cue. These wereas follows:­

In February 1998 Mr Jacobs was requested to resign as the Managing Director of Cue.On 5 May 1998 Mr Fabila replaced Mr Kaul as the Managing Director of NPF (Commission Document 124C to betendered as documentCU751.On 13 May 1998 at the Cue Board meeting Mr Kaul tendered his resignation and nominated Mr Fabila as his successor(CommissionDocument124B to be tendered as document CU752).On 1 September 1998 Mr Copland was terminated as a Trustee of NPF (Commission Document 124C to be tendered asdocument CU753.10 September 1998 Mr EG Albers wrote to Mr Leahy stating that Mr Copland was an independent director (CommissionDocument 642B to betendered as document CU754).NPF came increaingly under pressure from the ANZ Bank in respect of maintaining security coverage for the Fund's fullyinterchangeable loanfacilities (Commission Document 652).

Table of Cue purchases identified­ 1998

Investment appraisal and Board approval

At this stage we are unsure as to which member of the NPF management team initiated the above investments. In this regardwe are in the process ofobtaining evidence as to who instructed Merrill Lynch. However, it is apparent from a review of the relevant Board Minutes andBoard Papers found inCommission Documents 49 that these investment transactions were not approved by a Board resolution.

These transactions were also above the approved delegation level of the Managing Director and therefore would require theBoard of Trustees' approval. However it should be noted that as these investments were below the K1 million threshold set by the Minister for Finance inApril 1996, Ministerial approvalwas not required.

Again, without labouring the point, one is left wondering what the rationale was for further investment in Cue, where clearly thecompany was beset byproblems, the most significant being the company's clear lack of development capital.

THE CHAIRMAN: Has part of the investigation been to investigate the transactions by the NPF directors on Cue board in theirown shareholdings on Cue?

MR REEVE: No, that is part of what we hope will be done with ASIC. We will be looking at their personal shareholdings andassets owning, whether therewere any dealings direct with NPF and examining what their dealings were in shares in which NPF held shares and we are alittle delayed in that. It issomething that I could perhaps describe at the present position that we are saying that the summonses that were issued byASIC to one of the brokerswhich I will not name has not been fully answered. And we understand that they accept that and there is some argumentgoing on at present in Australiaabout what they do and do not have to produce. Perhaps, I could leave at that and I can take it further at a later stage.

THE CHAIRMAN: We will hear more of that if we need to.

MR REEVE: Certainly chairman.

THE CHAIRMAN: It seems quite obvious that if the NPF directors on the Cue board are also holding a substantial number ofshares in Cue and at the sametime as NPF is influencing the prices of the Cue shares by massive buy in at a time when everybody else maybe wanting tosell. It will also affect the valueof the shareholdings by the NPF directors.

MR REEVE: Inevitably, it must. That is what we say is an inevitable conflict of interest. And that particularly occurs whenplacements are being made, asyou will see in this opening, where NPF's acquisition was largely through placements and in many instances the price that waspaid for shares in theplacement was substantially in excess of the market price of the shares. So by taking the placements, they were in fact payinga premium to market.

THE CHAIRMAN: Yes, I see. We will await that information with interest.

MR REEVE: Mr Chairman, unless Mr Batari has anything, I have nothing further for the commission this morning. I will justexplain that again. We hadthought that Mr Henao might be taking some time but we understand why that is not.

THE CHAIRMAN: Yes, and we appreciate that too and we will proceed on that topic of borrowings in the absence ofsubmissions on Mr Leahy's behalfand his evidence because we cannot wait much longer.

MR REEVE: And Mr Henao understands it.

THE CHAIRMAN: Thank you. Mr Batari, I am sorry, I did not give you an opportunity to comment on any of the previous shortmatters that Mr Reeve raisedeither. Do you have anything to say on anything now?

MR BATARI: No.

THE CHAIRMAN: Okay, thank you. Then we will adjourn probably until Thursday in that case Mr Reeve when Mr Griffinarrives.

MR REEVE: We have many things we can be doing in the meantime. Mr Griffin has asked for Thursday. He has a very tighttimetable, but I indicated to himafter discussion with Commissioner Manoa that Thursday would be acceptable to the commission.

THE CHAIRMAN: And he will finish in one day, I gather?

MR REEVE: I believe so, yes.

THE CHAIRMAN: All right, and you are not going to be ready with the second part of the Cue matters before that, is that right?Well, by Thursday?

MR REEVE: I think there is probably enough reading there. It will certainly be ready by Thursday and I would propose to takethe first few minutes onThursday to actually present the balance of that.

THE CHAIRMAN: All right. Anyway, we will in the meantime study what you have handed up which I notice achieved 135pages.

MR REEVE: It is a bit more than that.

[10.15 am] THE CHAIRMAN: I see, 148 pages. All right, thank you. We will adjourn until Thursday, 19 October at 9.30 here inthe court house. Thank you very much.

AT 10.18 AM, THE COMMISSION OF INQUIRY WAS ADJOURNED UNTIL THURSDAY, 19 OCTOBER 2000 AT 9.30 AM.

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