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RECORD OF SETTLEMENT

| | BETWEEN | DR DAVID BENNETT       
| | ------- | -----------------------
| |         |                        
| |         | Chief Executive Officer
| |         |                        
| | AND     | AUSTRAL PACIFIC        
| |         | ENERGY LTD             
| |         |                        
| |         | Employer               

BACKGROUND:

|A | The Chief Executive Officer is currently Chief Executive
      Officer and a member of the board of directors (the Board) of the
      Employer;                                                                          
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                             
|B | As part of an executive succession plan, agreements have
      been reached between the Chief Executive Officer and Employer as to the
      retirement of the Chief Executive Officer and retention of his
      successor.

IT IS AGREED:

|1 | The Chief Executive Officer will tender a written
      resignation as Chief Executive Officer the effective date being Friday 30
      December 2005. To effect an orderly transfer of duties to an incoming
      Chief Executive the Board will engage the Chief Executive Officer as a
      consultant for an initial period of three months, for a minimum of 20 days
      per month, from 1 January 2006 at a daily rate of NZ$2,500. Thereafter any
      further consultancy activities will be as agreed between the Company and
      the Chief Executive Officer. This arrangement does not preclude the Chief
      Executive Officer from undertaking consultancy engagements with
    others.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2 | The Employer will pay to the Chief Executive Officer on
      30 December 2005, any outstanding salary, severance (as hereinafter
      provided) and annual leave due to him calculated and paid as at Friday 30
      December 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3 | The Employer will pay to the Chief Executive Officer on
      30 December 2005, a severance amount equivalent to 22.5 months base
      salary, comprising 16.5 months base salary and 6 months base salary in
      lieu of notice for the Chief Executive Officer and the Chief Executive
      Officers resignation will be effective as from that date .                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4 | The Employer will meet the Chief Executive Officers
      costs in relation to legal fees and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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associated re-orientation costs up to
the total sum of $10,000 exclusive of GST upon receipt of appropriate invoices
for such expenditure.

|5 | The Chief Executive Officer will retain his rights in
      respect of the 600,000 vested options in the Employer the exercise date of
      which was extended in July 2005 for a further two years, the extension
      being subject to obtaining disinterested shareholders approval as required
      by the TSX Venture Exchange and approval of the Employers upgrade in
      listing status to Tier 1. In the event that those approvals are not
      obtained during the two year period or declined at the forthcoming AGM
      planned for May 2006 the Employer will pay US$300,000 to the Chief
      Executive Officer to extinguish any interest whatsoever that the Chief
      Executive Officer has in those 600,000 vested options. In the event that
      the approvals to extend the exercise date are obtained during the two year
      period, the Chief Executive Officer retains his right to the 600,000
      options and no money is payable by the
Employer.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6 | The terms of the 300,000 performance options that were
      granted to the Chief Executive Officer that vest on or before 15 October
      2007 if the net revenue from production reaches US$4m in a fiscal year
      will be varied to waive the performance requirements on 150,000
      performance options, to vest those options as at 30 December 2005 and for
      the exercise date to be on or before 15 October 2007 subject to obtaining
      disinterested shareholders approval as required by the TSX Venture
      Exchange and approval of the Employers upgrade in listing status to Tier
      1. Subject to those approvals being granted, the Chief Executive Officer
      immediately waives his rights to 150,000 of the 300,000 performance
      options on which performance requirements have not been waived. In the
      event that the approvals to vary the terms of the 300,000 performance
      options so as to waive the performance requirements for 150,000 of the
      options to vest on 30 December 2005 and have an exercise date on or before
      15 October 2007 are not obtained, then either, at Chief Executive
      Officers election, the Employer will pay US$150,000 to the Chief
      Executive Officer to extinguish any interest whatsoever that the Chief
      Executive Officer has in all 300,000 performance options, or Chief
      Executive Officer can elect to continue the 300,000 options to the end of
      their term.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7 | The Employer will make positive recommendations in the
      May 2006 AGM Notes to Shareholders that 600,000 vested options be extended
      as described in 5) above, and that the 300,000 performance options be
      amended as in 6) above, and will positively support such resolutions at
      the AGM and vote proxies in support of these recommendations.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                      
|8 | The Chief Executive Officer agrees to use his best
      endeavours to ensure a transfer of all                                                                                                                                                                                                                                                                      

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|   | intellectual property, which is of considerable value,
      held by the Chief Executive Officer to the other staff members of the
      Employer and as otherwise directed by the Board as represented by the
      Chairman.                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|9  | The Employer shall continue to ensure all company
      property and documents are available to the company and its employees and
      officers on or before the effective date of his resignation.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10 | The Chief Executive Officer acknowledges that his
      confidentiality obligations to the Employer continue both prior to the
      effective date of his resignation and after his employment with the
      Employer ceases and the Employer maintains confidentiality on like terms
      on any matters relating to the Chief Executive Officer.                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|11 | The terms of this settlement and matters relating to it
      shall remain private and confidential to the parties and their advisers
      except to the extent required to be disclosed under applicable securities
      laws.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|12 | The terms and conditions of settlement are in full and
      final settlement of any claim that the Chief Executive Officer may have
      against the Employer now or in the future arising from his employment in
      any way whatsoever (including but not limited to his interest in the share
      options referred to in Clauses 5 and 6) with the Employer or any of its
      associated or subsidiary companies and their directors and officers
      including the termination of that employment.                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|13 | The Chief Executive Officer acknowledges that while this
      settlement is entered into in his capacity as Chief Executive Officer, his
      future role as a director is a matter which is to a degree in the hands of
      the Board and ultimately in the hands of the shareholders of the Employer,
      and as such the Chief Executive Officer acknowledges that he has no rights
      or entitlement to any compensation, other than those offered to
      non-executive Directors, in connection with any continuing directorship or
      any subsequent termination thereof unless the parties shall otherwise
      agree in writing.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|14 | The Employer will seek the Chief Executive Officers
      approval to the wording of that part of any future public disclosure
      document which contains his name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Dated at Wellington
this                     
day
of                                                  
2005.

|Signatures: |                        | 
|----------- | ---------------------- | 
|            | Dr David Bennett       | 
|            |                        | 
|            |                        | 
|            | David Newman, Chairman | 

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