The $10.5 million in sales for the June, up from $6.13 million, is largely a reflection of the ramp-up in Hovea and Eremia oil production to the 5,000 bopd target, which was achieved during late May.

The Hovea Production Facility had produced in excess of 700,000 barrels of oil at the end of the quarter, which subsequently led to a 69% increase in oil sales and the increased profit.

During the quarter the Hovea 4 well continued production at rates up to 4,000 bopd with no water while test production from Eremia reached 1000bopd.

Original flows from the Eremia well, located in the onshore Perth Basin Production Licence L1, were at an initial constrained rate of 1,600bopd. Early analysis of the oil recovered shows it is very similar to that from the Hovea Field.

A highlight during the quarter was the opening of the Hovea Production Facility and the start of the Hovea development drilling program with the Hovea 8 horizontal oil development well spudded on 19 July 2003.

The beginning of the development drilling program with the Hovea 8 well will also provide the joint venture with access to the drilling rig for exploration wells in the L1/L2 area.

Evaluation of exploration drilling targets continued during the quarter, and ARC intends to propose exploration wells to the joint venture as soon as technical work is completed.

The technical work includes the acquisition of a gravity survey in the oil fairway to the west and south of the Dongara Field.

Sale of the company's 7.5% interest in the Cliff Head Oil Field to ROC Oil was completed on 4 July 2003. Arc's original farm-in to the block saw them paying 20% for a 15% stake.

In 2001 a farm-out agreement saw Wandoo Oil acquire 7.5% from ARC by paying 15% of the anticipated drilling costs. The farm-out therefore represented a reduction in cost exposure from 20% of the well costs to 5%, to achieve a 7.5% interest.

The new agreement with Roc represented a consolidation of assets for both companies, allowing Arc to focus on its primary activities at Hovea and Eremia while using the Cliff Head proceeds to eliminate its net debt.

Following a debt repayment of $3.2 million on 15 July 2003, the company's debt facility with Rothschild has been reduced to $8.2 million, with total cash reserves of around $12

million.

The company is currently negotiating a restructuring of its remaining debt facility, and together with continued high levels of oil production, should enable the company to comfortably fund its share of Hovea/Eremia development costs.