RECOMMENDED MERGER OF BEACH AND DRILLSEARCH‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌

Positioning for future growth through a logical combination

• Combination of Beach and Drillsearch to be implemented via a scheme of arrangement

• Drillsearch shareholders to receive 1.25 Beach shares for every Drillsearch share held

• Premium for Drillsearch shareholders of 30%1based on the 3-month VWAP for each of Beach and Drillsearch

• Significant benefits for both sets of shareholders

• Creates the leading mid-cap oil and gas company on the ASX, with a market capitalisation of approximately $1,169 million2

• Logical combination of two complementary businesses

• Combined entity primed for growth

• Estimated pre-tax synergies and cost savings of ~$20 million per annum3

  
  

  Beach Energy Limited (Beach) (ASX: (BPT)) and Drillsearch Energy Limited (Drillsearch) (ASX: (DLS)) are pleased to announce that they have entered into a binding Merger Implementation Agreement that will create the leading mid-cap ASX oil and gas company through an all-scrip merger.

  Under the terms of the agreement, Beach has agreed to acquire all of the shares in Drillsearch that it does not already own4 via a Scheme of Arrangement (the Scheme). Drillsearch shareholders will receive 1.25 Beach shares for each Drillsearch share held.

  
  

  The merger will create a company of enhanced scale that is positioned for future growth, with combined FY2015 production of 12.1 MMboe 5and an expanded portfolio of oil, gas and infrastructure assets. The Boards of both Drillsearch and Beach believe this is a logical combination of two complementary, overlapping businesses, with the opportunity to generate significant value for shareholders of both companies.

  
  

  The Directors of Drillsearch unanimously recommend that all Drillsearch shareholders vote in favour of the Scheme and they intend to vote the Drillsearch shares that they control in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert finding that the Scheme is in the best interests of Drillsearch shareholders.

  
  

  Transaction summary

  Based on the 1.25 exchange ratio, the consideration to be offered to Drillsearch shareholders values Drillsearch at a price of $0.83 per share and a market capitalisation of $384 million.6This represents an attractive premium7of:

  • 27%8to the closing price of Drillsearch shares on the ASX on 22 October 2015 of $0.655 per share;

1 Based on the VWAP of Beach shares of $0.65 per share over the 3-month period up to and including 22 October 2015

2 Based on the combined market capitalisations of Drillsearch and Beach at closing share prices on 22 October 2015

3 Targeted synergies exclude one-off integration costs, and are in addition to Drillsearch's targeted cost base reduction of $10 - $15 million

Under the Scheme, the Beach Board would be reconstituted with Jim McKerlie and Phil Bainbridge from Drillsearch to be appointed as new Beach Directors and two existing Beach Directors to resign from the Beach Board. Glenn Davis would continue to serve as Chairman of the Beach Board following the successful conclusion of the merger.

A Merger Integration Group led by Beach Acting Chief Executive (Neil Gibbins) and Drillsearch Chief Executive (Walter Simpson) will commence planning for the combined group immediately. Management will be selected on a 'best for job' basis, drawing on the depth and experience available within the combined management teams. The Beach Board is currently conducting a search

12 Based on FY2015 combined group oil production of 7.2 MMbbl

13 Based on 2015 Full Year Reports, including Appendix 4E, Directors' Report and Financial Statements

14 By the requisite majorities of 75% of the votes cast, and 50% of the number of shareholders who vote, on the Scheme

for a new Chief Executive who will become the Chief Executive of the combined group following completion of the transaction. Drillsearch will be consulted on this appointment.

A full copy of the Merger Implementation Agreement is attached.

Timetable

Drillsearch shareholders do not need to take any action at the present time.

Full details of the Scheme, including the recommendation of the Drillsearch Directors and the Independent Expert's Report will be included in the Explanatory Booklet to be sent to Drillsearch shareholders. It is expected that the booklet will be sent to shareholders in mid December. Subsequently, Drillsearch shareholders will be asked to vote on the Scheme at a meeting expected to be held in late January 2016.

To the extent Beach shareholder approval is required in respect of the Substantial Shareholder Acquisition, a Notice of Meeting, recommendation from the Beach Directors and an Independent Expert's Report will be sent to Beach shareholders. These materials are expected to be sent to Beach shareholders in December, after which the Beach shareholder meeting would be held prior to the Scheme meeting.

Set out below is an indicative timetable for the transaction:

Event Date

First Court Date Early-December

Dispatch Notice of Meeting to Beach Shareholders (if required) Early-December Dispatch Explanatory Booklet to Drillsearch Shareholders Mid-December Beach Shareholder Meeting (if required) Mid-January 2016

Scheme Meeting Late January 2016

Second Court Date Mid-February 2016

Effective Date Mid-February 2016

Record Date Late-February 2016

Implementation Date Late-February 2016

Advisers

Beach is being advised by Macquarie Capital as financial adviser and Minter Ellison as legal adviser.

Drillsearch is being advised by Goldman Sachs and UBS as financial advisers and Ashurst as legal adviser.

ENDS

For further information, please contact:

Conference call

A conference call for analysts and investors has been scheduled for today, Friday 23 October 2015. Details are:

Date and time: 11.00am (AEDT) on Friday, 23 October 2015

Access code: 1587819

Execution version

Merger implementation agreement

Drillsearch Energy Limited (Drillsearch) Beach Energy Limited (Beach)

draft

Merger implementation agreement

Details 5

Agreed terms 6

1. Defined terms & interpretation 6

2. Defined terms 6

3. Interpretation 22

4. Headings 22

5. Agreement to propose Scheme 22

6. Conditions precedent and pre-implementation steps 23

7. Conditions to Scheme 23

8. Benefit and waiver of conditions precedent 24

9. Satisfaction of Conditions 24

10. Notifications 25

11. Certificate 25

12. Scheme voted down 26

13. Conditions not capable of being fulfilled or Scheme not Effective by End Date 26

14. Interpretation 27

15. ASX Waiver 27

16. Scheme structure 27

17. Scheme 27

18. Scheme Consideration 27

19. Allotment and issue of New Beach Shares 28

20. Scheme - parties' respective implemendraf t tation obligations 28

21. Drillsearch's obligations 28

22. Beach's obligations 31

23. Explanatory Booklet - preparation principles 32

24. Joint Information 34

25. Beach Meeting Materials - preparation principles 34

26. Beach Shareholder Approval 36

27. Drillsearch Board recommendation 36

28. Beach Board recommendation 37

29. Conduct of business before the Implementation Date 37

30. Conduct of Drillsearch's business 37

31. Drillsearch permitted activities 38

32. Conduct of Beach's business 38

33. Beach permitted activities 38

34. Access 39

35. Merger Integration Group 39

36. Consultation 40

37. Reconstitution of boards of Beach and Drillsearch Group Members 40

38. Beach Board composition 40

39. Drillsearch Board 40

40. Deeds of insurance and indemnity 40

41. Representations and warranties 41

42. Beach representations 41

43. Beach's indemnity 43

44. Drillsearch representations 43

45. Drillsearch's indemnity 45

46. Notifications 45

47. Survival of representations 45

48. Survival of indemnities 45

49. Liability of directors and Authorised Persons 45

50. Confidentiality and Public announcement 46

51. Confidentiality 46

52. Public announcements on execution 46

53. Further public announcements 46

54. Termination 46

55. Termination for non-satisfaction of Conditions or Effective Date 46

56. Other termination rights 47

57. Effect of termination 48

58. Disclosure on termination of agreement 48

59. Drillsearch Break Fee 48

60. Background 48

61. Costs incurred by Beach 48

62. Payment by Drillsearch to Beach 49

63. Drillsearch Break Fee not payable 50

64. Drillsearch limitation of liability 50

65. Compliance with law 50

66. Beach Break Fee 51

67. Background 51

68. Costs incurred by Drillsearch 51

69. Payment by Beach to Drillsearch 51

70. Beach Break Fee not payable

    draft 52

71. Beach limitation of liability 52

72. Compliance with law 52

73. Exclusivity by Drillsearch 53

74. No shop 53

75. No talk and no due diligence 53

76. Exceptions 53

77. Drillsearch warranty and undertakings 53

78. Notice of Competing Proposal 54

79. Exclusivity by Beach 55

80. No shop 55

81. No talk and no due diligence 55

82. Exceptions 55

83. Beach warranty and undertakings 56

84. Notice of Beach Competing Proposal 56

85. Drillsearch Options and Performance Rights 57

86. Drillsearch Options 57

87. Drillsearch Performance Rights 58

88. Notices 58

89. General 59

90. Further acts 59

91. Timetable 59

92. Payments 59

93. Interest 59

94. Consents or approvals 59

95. GST 59

96. Stamp duty 60

97. Expenses 60

98. Amendments 60

99. Assignment 60

100. Business Day 60

101. Waiver 60

102. Release of officers and directors 60

103. Counterparts 61

104. Entire agreement 61

105. No representation or reliance 61

106. No merger 61

107. Governing law 61

Schedule 1 - Indicative Timetable 62

Schedule 2 - Deed Poll 63

Schedule 3 - Scheme 64

Schedule 4 - Agreed Public Announcement 65

Signing page 66







draft

Details




Date




Parties

Name ABN/ACN

Short form name Notice details




Name ABN/ACN

Short form name Notice details




Drillsearch Energy Limited 006 474 844

Drillsearch

Level 18, 321 Kent Street, Sydney NSW 2000

Facsimile: +61 2 9249 9630 Attention: Company Secretary




Beach Energy Limited 007 617 969

Beach

25 Conyngham Street, Glenside SA 5065

Facsimile: +61 8 8338 2336 Attention: Company Secretary




Background

1. Drillsearch and Beach have agreed to implement the Proposed Transaction on and subject to the terms and conditions of this agreement.

2. Drillsearch and Beach have agreed certain other matters in connection with the Proposed Transaction as set out in this agreement.







Minter Ellison I Ref: RWF:SAM 1098395

Merger implementation agreement I page 5




ME_125802541_1 (W2007)

Agreed terms




1. Defined terms & interpretation

2. Defined terms

   In this agreement, unless the context otherwise requires, the following words and expressions have meanings as follows:

   Accounting Standards means the accounting standards made or in force under the Corporations Act, and if any matter is not covered by those accounting standards, generally accepted Australian accounting principles.

   Adviser means any person who is engaged to provide professional advice of any type (including legal, accounting, consulting or financial advice) to Drillsearch or Beach or any of their respective Related Bodies Corporate.

   Agreed Public Announcement means the public announcement to be made jointly by Drillsearch and Beach in the form of Schedule 4.

   ASIC means the Australian Securities and Investments Commission.

   Associate has the meaning given in Division 2 of Part 1.2 of the Corporations Act as if

   section 12(1) of that Act included a reference to this agreement and, when the term 'Associate' is used in the definition of 'Competing Proposal', Drillsearch was the designated body and when the term 'Associate' is used in the definition of 'Beach Recommended Proposal' and 'Beach Competing Proposal', Beach was the designated body.

   ASX means ASX Limited (ABN 98 008 624 691) or, if the context requires, the financial market operated by it.

   ASX Waiver means a waiver granted by ASX to Beach in respect of the application of Listing Rule 10.1 to the Substantial Shareholder Acdraf t quisition, the effect of which is to allow the Scheme to proceed without Beach Shareholder Approval on terms and conditions which are acceptable to Beach (acting reasonably).

   Authorisation means an approval, authorisation, consent, declaration, exemption, licence, lease, notarisation, permit or waiver, however it is described, from or by a Regulatory Authority, including any renewal or amendment and any condition attaching to it.

   Authorised Person means, in respect of a person:

3. a director, officer, member or employee of the person;

4. an Adviser of the person; and

5. a director, officer or employee of an Adviser of the person.

Beach Board means the board of directors of Beach, as constituted from time to time.

Beach Break Fee has the meaning given to it in clause 12.3(a);

Beach Competing Proposal means any offer, proposal or expression of interest, transaction or arrangement (including, by way of takeover bid or scheme of arrangement) which directly competes with, or is directly inconsistent in any material respect with the consummation of, the Proposed Transaction, other than as contemplated pursuant to this agreement, and which, if ultimately completed substantially in accordance with its terms:

1. would result in a person or two or more persons who are Associates directly or indirectly:

2. acquiring a relevant interest in or becoming the holder of 15% or more of the Beach Shares; or

3. acquiring, obtaining a right to acquire, or otherwise obtaining an interest (including an economic interest) in, 15% or more by value of the business or property of the Beach Group; or

4. otherwise acquiring control of Beach, within the meaning of section 50AA of the Corporations Act; or

5. otherwise acquiring, merging or amalgamating with Beach or amalgamating with, or acquiring a significant shareholding or economic interest in the Beach Group of 15% or more by value of the total assets or business of the Beach Group, whether by way of takeover bid, scheme of arrangement, shareholder approved acquisition, capital reduction, share buy-back or repurchase, sale or purchase of assets, joint venture, reverse takeover, dual-listed company structure, recapitalisation, establishment of a new holding entity for Beach or the Beach Group or other synthetic merger or any other transaction or arrangement; or

6. contemplates that Beach will cease to be admitted to the official list of ASX or the Beach Shares will cease to be officially quoted on the market operated by ASX at any time up to and including the Implementation Date.

Beach Competing Proposal Notice has the meaning given to it in clause 14.5(a).

Beach Counterproposal has the meaning given to it in clause 13.5(g).

Beach Disclosure Letter means the letter so entitled from Beach provided to Drillsearch and countersigned by Drillsearch prior to the execution of this agreement, including its attachments.

Beach's FY15 Full Year Report means Beach's Full Year Report for the period ended 30 June 2015 as announced to ASX, incorporating Appendix 4E.

Beach Group means Beach and its Subsidiaries.

Beach Group Member means any member of the Beach Group.

Beach Impugned Amount has the meaning given to it in clause 12.6.

Beach Independent Expert means an expert, independent of the parties, engaged by Beach in good faith to opine on whether, in the independent expert's opinion, the Substantial Shareholder Acquisition is fair and reasonable to the Beach Shareholders other than the Substantial

Shareholder.




draft

Beach Independent Expert's Report means the report prepared by the Beach Independent Expert and stating whether the Substantial Shareholder Acquisition is fair and reasonable to the Beach Shareholders other than the Substantial Shareholder.

Beach Information means such information regarding the Beach Group, the Merged Group (except for matters to be addressed in the Investigating Accountant's Report and information provided by Drillsearch and for which it is responsible as described in clause 5.3(l)(i)), the Scheme Consideration and Beach's intentions in relation to Drillsearch's business, assets and employees that is provided by or on behalf of Beach to Drillsearch for inclusion in the Explanatory Booklet:

1. to enable the Explanatory Booklet to be prepared and completed in compliance with all applicable laws;

2. to enable applications for Regulatory Approvals to be made; and

3. otherwise in compliance with Beach's obligations under clause 5.2(a),

other than the Drillsearch Information, Investigating Accountant's Report and Drillsearch Independent Expert's Report.

Beach Material Adverse Change means an event or circumstance (including a change in law) that occurs, is announced or becomes known to Drillsearch (in each case whether or not it becomes public) after the date of this agreement which (where relevant, based on Beach's most recent audited financial statements prior to the date of this agreement) has or is reasonably likely to have a Material Adverse Effect in relation to Beach, but does not include any event or circumstance:

1. required to be done or procured by Beach pursuant to this agreement or the Scheme;

2. done with the express prior written consent of Drillsearch;