07/30/2010 | Press release

Quarterly Report June 2010

ANNOUNCEMENT TO THE AUSTRALIAN SECURITIES EXCHANGE: 30th July 2010

                 COMPANY QUARTERLY REPORT FOR MARCH TO JUNE 2010

HIGHLIGHTS

California

·   Production increased at North San Ardo oil field

·   Commencement of production test at Paris Valley oil field redevelopment project

·   Commencement of field wide cyclic steaming at North San Ardo

·   Potential new unconventional resource plays identified in California

Vietnam

·   Farmout of offshore Vietnam Block 105-110/04

·   Acquisition of 3,828 km of seismic data offshore Vietnam

·   Exploration of Block 105-110/04 one year ahead of schedule


PRODUCTION AND REVENUE SUMMARY



                                                    June 2010 Qtr            March 2010 Qtr          Change from
                                                                                                        March Qtr


 Production (bbls)                                        32,537                   21,869                 +48.8%

 Average Daily Production (bopd)                            358                      243                  +47.3%

 Revenues (US$MM)                                          $2.2                      $1.5                 +46.7%

 Average Sale Price per bbl (US$)                         $67.20                   $67.82                  -0.9%

 Operating Cost per bbl (US$)                             $10.40                   $12.20                 -14.7%

 Cash on Hand (US$MM) at end Qtr                           $1.5*                     $3.1                  -$1.6
*An additional US$2.1MM is payable to the Company subject to final approval by the Vietnamese authorities of the farmout to
KrisEnergy of Blocks 120 and 105-110/04.


SIX MONTH OUTLOOK

·   Further production drilling at North San Ardo

·   North San Ardo production increases ­ field-wide cyclic steaming and new well production

·   Further appraisal drilling at Paris Valley

·   Resource certification for Paris Valley oil field redevelopment project

·   Farmout and drilling of Guijarral Hills exploration prospects, California

·   Prospect definition and ranking in offshore Vietnam blocks 120 and 105-110/04

·   Study of unconventional resource potential within Californian asset base

·   Continued review of San Joaquin Basin prospects and leads identified in proprietary study

OVERVIEW

In April the Company announced a farmout of its second offshore Production Sharing Contract in
Vietnam - Block 105-110/04 ("Block 105") - to KrisEnergy Ltd. Under the terms of the farmout
KrisEnergy will acquire a 50% participating interest by paying Neon US$1,375,000 and fully funding
the 2D seismic acquisition and processing commitment. The transaction, which remains subject to
final approval by the Vietnamese authorities, has enabled Neon to fast track exploration of Block 105
(which was acquired in January 2010). With the earlier farmout of Vietnam Block 120 to KrisEnergy
the Company is now Operator of aligned joint ventures across both its blocks in Vietnam. During the
quarter, the Company was advised that the Vietnamese national oil company Petrovietnam has
waived its right of pre-emption in relation to both farmouts and has made a positive recommendation
to the Vietnamese Ministry of Industry and Trade regarding approval of the assignment to KrisEnergy.
Subsequent to the end of the quarter and pending confirmation of final ministry approval, the
Company has negotiated an agreement with KrisEnergy whereby an advance payment has been
made to the Company equivalent to the estimated final cost of the seismic acquisition and processing
program on both blocks.

Operationally there were no health, safety or environmental incidents for the quarter, during which
Neon acquired 3,828 km of 2D seismic data over Blocks 120 and 105. The seismic campaign was
completed ahead of schedule and under budget, and Fugro Seismic Imaging is currently processing
the newly acquired data. Early indications are that the 6 km long "solid" recording streamer has
delivered a significant improvement in seismic imaging quality compared to the 1990's vintage data.
Once processed it is expected that evaluation of the new data will de-risk currently identified
prospects and leads on both blocks, and may lead to the identification of additional leads and
prospects.

In California the Company achieved an overall increase in production and revenue at the 100%
owned North San Ardo oil field, relative to the previous quarter. In large part this was due to the
Lombardi 17-27H acceleration well which came on stream in April 2010. Initial production from that
well nearly doubled field production to ca. 500 bopd, however operational issues coupled with steeper
than anticipated decline rates have occurred. In an effort to continue enhancing production from the
field, two additional development well locations have been identified. The first of these wells is
scheduled to commence drilling by mid August, subject to rig availability.

Also at North San Ardo, Neon has commenced operations on a dedicated cyclic steaming project on
the central pad, further to the successful pilot project on the vertical 1-27 well earlier this year. It is
expected that a significant increase in field-wide production will ultimately be achieved, particularly
from the horizontal wells which expose much greater portions of the wellbore to the oil reservoir.
Steam injection commenced on the 5-27H well in early July, and each of the producing wells on the
central pad will be sequentially injected with steam. Typically, injection will occur for 18 to 20 days
before shutting the well in for approximately 5 days. Thereafter the well is expected to produce oil at
a significantly higher rate for a period of time such that the entire cycle results in an overall increase in
production for the period.

Elsewhere in California further appraisal activity commenced at the Paris Valley oil field
redevelopment project. In June, Neon commenced production testing operations on the NPV-1
(North Paris Valley) appraisal well, the purpose of which is to determine oil flow rates with and without
the assistance of steam enhancement. The initial test, without the benefit of steam, has at the time of
writing yielded primarily water with minor shows of oil and gas. Unfortunately Neon is experiencing
delays in sourcing a portable steam generator which is required to complete the final phase of the
test. The Company is in the process of resolving this issue and expects to have a solution in the
coming weeks. When thermal stimulation commences the Company will report on progress as results
become available.

Further to completion of the post-acquisition strategic review in Q1 2010, the management team is
continuing to develop and refine the Company's portfolio of exploration and appraisal opportunities
within California. In particular Neon has identified significant potential for a number of unconventional
resource plays within its existing asset portfolio. In the San Joaquin Basin the development of tight
reservoirs within existing fields using horizontal drilling and fracture stimulation techniques is being
studied. Also being reviewed is the possibility of developing known oil shales in the Monterey
Formation and the Kreynhagen Shale which exist within Neon's current acreage holdings.

Unconventional production in the San Joaquin Basin has accounted for over 30,000 bopd of
production for the last decade and is being hotly pursued by a number of major players in the basin.

Regarding more conventional resource plays, Neon has committed to participating in two wells on the
Guijarral Hills prospect in the San Joaquin Basin. Neon presently holds a 30% participating interest
and is in discussion with a third party to farmout, thereby reducing the Company's financial exposure.
The prospect is an extension of the Guijarral Hills oil field, and is regarded by management as being
relatively low risk with potential of some 4 mmbo of prospective resource (100%). Elsewhere in the
San Joaquin Basin management has elected to postpone drilling of the Osso Bucco and Merlot
prospects in order to allow sufficient time for the new technical team to undertake a thorough analysis
of their potential and risk, including their potential for unconventional resource plays.

PROJECTS UPDATE

Block 105 offshore Vietnam (Neon 50%*)
*Subject to final approval of farmout to KrisEnergy

Neon was awarded exploration Block 105-110/4
("Block 105") in the Song Hong Basin offshore
Vietnam on 5 January 2010. Neon is Operator of the
block and holds a 50% working interest, subject to
the approval of the Vietnamese authorities of the
recent farmout to KrisEnergy. Block 105 is located in
the central Song Hong Basin and covers an area of
some 7,192 km2 in water depths of less than 50
metres. Although there are discoveries nearby within
the same sedimentary basin, Block 105 has seen
very little exploration activity. A widely spaced grid of
2D seismic data exists but there has been no
exploration drilling to date on the block.

Premier Oil and VietGazprom hold respective
acreage immediately to the north and south of the
block, and the Chinese producing Dongfang and
LeDong gas fields lie approximately 35 kms from the
block's eastern boundary. These fields are estimated
to contain ultimate recoverable reserves of 1.5 Tcf
and 0.9 Tcf respectively.

Early interpretation and mapping indicates the
presence of a large number of leads and prospects,
many of which are supported by seismic amplitude
anomalies often associated with the presence of
hydrocarbons. Neon regards several of these leads
as analogous and on-trend with the gas discoveries
made by VietGazprom to the south. The recent 2D
seismic survey was designed to delineate and de-risk
two broad petroleum play fairways, with a view to
high grading a multi-target prospect for drilling.

Block 120, offshore Vietnam (Neon 50%*)
* Subject to final approval of farmout to KrisEnergy

Neon is Operator of Block 120 and holds a 50% working interest, subject to approval by the
Vietnamese authorities of the recent farmout to KrisEnergy. ExxonMobil and Origin Energy hold
acreage immediately to the north and south of Block 120, respectively. The recent 2D seismic survey
focused primarily on the carbonate and syn-rift trend which was targeted by BHP Petroleum's 1993
exploration well (which encountered a 6 metre oil column within a 32 metre zone of oil shows). As
Block 120 is located within a proven petroleum system, the key objective of the survey is to identify
potential clastic reservoirs within the syn-rift section beneath the carbonate leads. Neon opted for a
long (6 km) "solid" recording cable ("streamer") in order to maximise the potential to successfully
image beneath the carbonate section. Early indications suggest a significant improvement in data

quality compared to the legacy data and it is hoped that the new data, when processed, will allow
Neon to identify an optimal location for exploration drilling that will test multiple targets across two
separate petroleum plays.

North San Ardo Oil Field, California (Neon 100%)
Production at North San Ardo increased relative to the March quarter, in large part due to the drilling
of the Lombardi 17-27H acceleration well. Production for the quarter was up by 49%, with revenues
up 47%. Overall "per barrel" operating costs were reduced by 23%, principally due to the higher
production. Capital expenditure for the quarter amounted to $491,000.

           Month                  Barrels*           Average BOPD             Sales Revenue ($US)

            April                  12,366                  412                      $898,375

            May                    11,169                  360                      $705,835
            June                    9,002                  300                      $582,213

            Total                  32,537                  358                     $2,186,423

 * Gross sales volumes (which are less than production volumes and have been corrected for
temperature and BS&W).

During the quarter Neon commissioned a 25 MMBTU field steam generator in order to commence a
field-wide cyclic steaming project, whereby all the wells on the central pad will be sequentially injected
with steam in order to improve production. Injection operations commenced on the 5-27H well in July
and the Company will report further on the North San Ardo cyclic steaming program as results
become available. This project follows a successful trial of steaming the vertical 1-27 well earlier this
year, which has more than doubled the original rate of production of that well. The Company believes
that the greater capacity of the dedicated field steam generator utilized on horizontal wells will yield
even better results than those achieved in the pilot project.

Paris Valley Oil Field, California (Neon 100%)

A production test of the NPV-1 appraisal well commenced in late June. After an initial "cold
pumping" phase is completed, steam will be introduced to the wellbore to stimulate oil production.
The aim of the flow-test is to evaluate oil flow rates and thus the potential commerciality of the field.
Thus far and as anticipated, during the initial cold pumping phase the well has primarily yielded
water, at rates that indicate the reservoir permeability may be conducive to commercial rates of oil
production. The steaming phase is designed to mobilize the oil so that actual production rates can
be assessed. Unfortunately Neon is experiencing delays in sourcing a portable steam generator
which will be required to complete the final phase of the analysis. The Company is in the process of
resolving the problem, expects to have a solution in the coming weeks, and will report on results as
they become available. Neon has commissioned MHA Petroleum Consultants to provide an
independent assessment of the resource in the North Paris Valley compartment following evaluation
of the testing results, and expects the evaluation to be completed before the end of Quarter 3, 2010.


The next phase of the Paris Valley appraisal project includes the drilling of a horizontal well in the
Central compartment. To date no horizontal wells have been drilled on Paris Valley, and it is
anticipated that production rates from an extended horizontal section will be significantly greater than
those achieved in the legacy vertical wells. Neon expects to commence its Central Paris Valley-1H
("CPV-1H") well during the latter half of 2010, subject to rig availability. A successful well at CPV-1H
will enable MHA Petroleum Consultants to certify reserves in the Central compartment, with a view to
allowing Neon to initiate a fast-track development study. In an independent report dated 1st January
2009, MHA consultants have calculated a gross recoverable Proved plus Probable resource for the
Central Paris Valley Area of 9.1 MMBO (The information in the MHA Petroleum Consultants' report
was compiled by Leslie S O'Connor, President of MHA Petroleum Consultants, who is qualified in
accordance with the ASX listing rule 5.11. Ms O'Connor, a practicing Petroleum Engineer and
Geologist for 34 years, has given her consent to the release of the reserves contained in this report.)

San Joaquin Basin, California
Neon's core acreage in the Southern San Joaquin Basin remains under lease and the technical team
are revisiting the technical aspects of the various prospects in order to better understand the relative
resource potential and risk of each opportunity. Management has determined that potential exists
within the Company's San Joaquin asset base for unconventional resource plays, and these are a
focus of study in the near term.

New Ventures
The Company is continuing with its objective to acquire new assets at the "grass roots" level with high
initial participating interest. Given these aims the mode of entry will generally be a license award
either via direct negotiation with the host government, or via participation in a competitive licensing
round. Neon is progressing a number of opportunities within southeast Asia, in addition to
maintaining a "watching brief" on a number of areas of interest pending announcement of formal
licensing rounds.

In California the Company continues to search for low to moderate risk appraisal and development
opportunities in order to grow the Company's reserves base in the medium term.

CORPORATE

Resignation of Director
Mr Ian Middlemas resigned as independent Non-Executive Director effective 11th June 2010 in order
to focus on other commitments further to the successful transition to the new Neon management
team.

_________________________________________________________________________

Enquiries             Managing Director:         Ken Charsinsky (Tel: 08 9481 1176)
                      Website:                   www.neonenergy.com