INDAGO PETROLEUM RESEARCH & ANALYSIS, OCTOBER 2005

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1 INDAGO PETROLEUM RESEARCH & ANALYSIS, OCTOBER 2005

2 E XECUTIVE S UMMARY T HE C OMPANY Indago Petroleum (Indago) is a new company that intends to list on AiM in November Indago was formed through a management buy-out of the United Arab Emirates (UAE) and Omani assets of Novus Petroleum (Novus), an oil company previously listed on the ASX. Novus was acquired by PT Medco Energi (Medco), the Indonesian oil company, in a hostile take-over in The acquisition of Indago was financed by Meridian Capital which owns 69% of the company. Crosby Capital and the management team respectively own 21% and 10% of the company. T HE M ANAGEMENT The management of Indago have been in place for over 9 years and have built an attractive exploration portfolio using their strengths in field mapping and integration. Indago's management have established a reputation in the region as a competent partner through their operatorship of the offshore Bukha gas and condensate field (Block 8, Oman). In addition, in the same block, they have taken the West Bukha well through appraisal to development phase. A SSET P ORTFOLIO Indago have focused on developing an understanding of the fold-belt fairway of the Northern Arabia Peninsula, in Oman and the UAE. They have integrated surface geology with improved seismic imaging to generate a suite of attractive exploration prospects. All reservoir targets have established analogous regional producers. Indago has developed a mature prospect inventory with Hagil and Ash Sham in the UAE (Onshore RAK); Jebel Hafit (Block 31), and Adam and Izz (Block 47) in Oman. There are also several follow-up leads in each of the blocks to enable Indago to build on any exploration success in the current drillable prospects. Indago also has a number of opportunities in the region which may enable it to grow the portfolio further in the event of exploration success. W ORK P ROGRAM Indago is expected to raise up to US$ 120 million (m) at its IPO to be applied to debt repayment, project development, the drilling of 5 wells, exploration and the finalisation of new projects. The US$ 60 m West Bukha development well is underway. The US$ 16.7 m Hagil well spudded at the start of October Thereafter, Indago expects to spud a US$ 11.4 m well at Adam in May 2006, followed by a US$ 24.8 m well at Jebel Hafit in September/October A US$ 10.2 m well at Izz will be spudded either before or after drilling starts at Hafit, with a US$ 5.4 m well at Ash Sham scheduled for August VALUATION With a target reserve base of 1.93 billion (bn) barrel of oil equivalent (boe), with a gross adjusted probability value of US$ 1.6 bn, Indago has a range of high impact exploration opportunities. The estimated unrisked recoverable Gas Initially In Place (GIIP) of the Prospect portfolio is 6.2 trillion cubic feet of gas (Tcf) gas. Using a 1 in 5 probability, and a fixed gas price of US$ 1.20 and US$ 1.40/MMbtu for the Oman and the UAE respectively, the value is approximately US$ 403 m. The estimated unrisked Condensate Initially In Place (CIIP) plus LPG volume from the current prospect inventory is 789 MMboe. 82% of condensate potential is contained with two prospects, Jebel Hafit and Hafit. On a risked basis at a West Texas Intermediate (WTI) oil price equivalent of US$ 30/bbl, the value of this condensate portfolio is approximately US$ 1.2 bn. The expected volume from the current lead inventory is 212 Bcf gas and 4.7 MMboe condensate plus LPG. Using a 1 in 20 probability at the fixed gas prices noted above and a WTI of US$ 30/bbl, the value of the gas, condensate and LPG Lead portfolio is approximately US$ 7.4 m. This valuation only reflects those leads valued by Petrenel, the technical consultant. In addition, Indago s management have developed a portfolio of leads to which no value has as yet been attributed Adjusting for possible back-in's, a 30% weighting of the calculated value of Jebel Hafit and Hagil, and a deduction of 25% from the adjusted value for various risk factors; within a WTI price range of US$ 30/bbl to US$ 54/bbl, an indicative valuation for Indago is between US$ 427 m to US$ 701 m. Indago Petroleum would like to thank NASA for providing the cover image for this Report.

3 C ONTENTS THE COMPANY 2 OVERVIEW 2 STRATEGY 4 NON-EXECUTIVE DIRECTORS 5 EXECUTIVE DIRECTORS 7 OPERATING STRUCTURE 8 CORPORATE GOVERNANCE 10 THE UNITED ARAB EMIRATES AND OMAN 12 REGIONAL ENERGY SUPPLY AND DEMAND 16 ASSET PROFILE 18 PRODUCTION 22 DEVELOPMENT 24 PROSPECTS 26 LEADS 32 OPPORTUNITY 38 WORK SCOPE & FINANCING 40 RISKS 44 FINANCIAL ANALYSIS 48 VALUATION 54 GLOSSARY 62 APPENDIX 1: OVERVIEW OF THE ENERGY SECTOR 64 RATINGS SYSTEM & CERTIFICATION 69 RESEARCH DISCLOSURES 70 DISCLAIMER 71 1 INDAGO PETROLEUM

4 T HE C OMPANY OVERVIEW Indago Petroleum (Indago) intends to list on the London AiM market in November Indago is a focused oil and gas Exploration and Production (E&P) company with a portfolio of opportunities, which vary in risk and maturity. Indago was formed through a management buy-out of the United Arab Emirates (UAE) and Sultanate of Oman (Oman) assets of Novus Petroleum (Novus). Novus was acquired by PT Medco Energi (Medco), the Indonesian oil company, in a hostile take-over in The buy-out of the assets of Indago was financed by Meridian Capital which on a pre-money basis owns 69% of the company. Silk Route Petroleum, a company controlled by Crosby Capital, and the management currently own 21% and 10% of the company respectively. Indago is the 100% owner of subsidiary companies Indago Technical Services Ltd, Indago Oman Ltd (IOL) and Indago Al Khaleej Ltd (IAK). These companies hold its interests in a producing gas-condensate field (Bukha), and an approved gas-condensate development (West Bukha), which is expected to come in stream in late Both of these assets are located off the Musandam Peninsula in Omani waters. In addition, Indago has 5 drillable prospects (Jebel Hafit, Block 31; Hagil and Ash Sham, Ras Al Khaimah; Adam and Izz, Block 47) and plans to drill 5 exploration wells prior to Indago is an active explorer and in addition to its portfolio of Prospects, it has several Leads in different stages of development. The company is also actively evaluating a number of new venture opportunities. MIRABAUD SECURITIES, M. HORN & CO. 2

5 Source: Indago Petroleum 3 INDAGO PETROLEUM

6 T HE C OMPANY STRATEGY Indago aims to become a leading producer of natural gas in Oman and the UAE in order to satisfy a significant forecast regional supply/demand imbalance. This objective will be achieved through: Development of existing fields Exploration in existing licenses held by the company Acquisition of related acreage and existing undeveloped discoveries. Indago has a significant amount of license acreage in the UAE and Oman, and is strategically well placed with strong political and working relationships in the region. COMPANY STRUCTURE Silk Route Petroleum Ltd 21% Meridian Middle East Inv. Ltd Management 69% 10% Indago Petroleum Ltd Indago Oman Block 30 Ltd 100% 100% Indago Al Khaleej Ltd Indago Technical Services Ltd 100% 100% Indago Oman Ltd Oman Block % 100% 40% 100% RAK Onshore Oman Block 17 Oman Block 31 Oman Block % 40% Oman Block 8 Atlantis 50% 10% 50% 10% Heritage Petroleum LG Heritage Petroleum BVI Cayman Islands Guernsey Bermuda Petroleum Concession Incl. Indago Interest NonIndago Companies Source: Indago Petroleum MIRABAUD SECURITIES, M. HORN & CO. 4

7 NON-EXECUTIVE DIRECTORS The Rt. Hon. Tim Eggar CHAIRMAN, NON-EXECUTIVE The Rt. Hon. Tim Eggar Chairman, Non-Executive. Mr. Eggar worked at Hambros Bank before spending 8 years with European Banking Company. In 1979, he was elected to the UK parliament. From 1985, he served in several UK ministerial positions and ultimately was Minister for Industry and Energy from 1992 to Since leaving government, he has served as a director of a number of companies, including Chairman of MW Kellogg Limited and of Agip UK Limited. He was Chief Executive Officer of Monument Oil and Gas plc. From 2000 to 2004, Mr. Eggar was Global Head of ABN AMRO's Global Energy Corporate Finance Group and, most recently, Chairman of UK Client Coverage. Mr. Eggar is currently a Non-Executive Director of Anglo Asian Mining and Expro Group International. He is President of the Russo-British Chamber of Commerce. He was the Chairman of the Anglo-Azeri Society. Barry Goldberg DIRECTOR Mr Goldberg is a principal of Genuity Capital Markets. Mr. Goldberg has extensive public company advisory experience. Prior to joining Genuity Capital Markets, from 1998 to 2005 Mr. Goldberg was a Managing Director at BMO Nesbitt Burns where he was the Head of Restructuring. From 1996 to 1998, Mr. Goldberg was a partner at the law firm Heenan Blaikie. From 1990 to 1996 he was a partner at the law firm Osler Hoskin and Harcourt. Mr. Goldberg has an undergraduate degree, a Bachelor of Civil Law, and a Bachelor of Common Law from McGill University. He is a member of the Ontario Bar. Rod Perry DIRECTOR Mr Perry is global head of Venture Capital for 3i plc. He is a member of the board of 3i Group plc and a member of both the Executive Committee and the Investment Committee. Between 1997 and 2001, Rod was responsible for the 3i investment business in Asia Pacific. Rod has a B.Sc. in Physics and is a member of the Institution of Electrical Engineers. 5 INDAGO PETROLEUM

8 T HE C OMPANY Paul Alexander Marchand DIRECTOR Mr. Marchand is General Counsel of Meridian Securities (UK) Limited. Mr. Marchand was formerly a partner of White & Case LLP, an international law firm. Prior to joining White & Case LLP, Mr. Marchand was a solicitor at Linklaters, an international law firm. Mr. Marchand is a member of the Law Society of England and Wales and holds a Bachelor of Civil Law degree from the University of Oxford (Corpus Christi College), an LL.B from the University of Stellenbosch and a Bachelor of Commerce and Masters in Taxation Laws from the University of the Witwatersrand. Dr Robert Charles Williams DIRECTOR Dr. Williams has degrees in geology from the Universities of Manchester and Cambridge, England. He joined British Petroleum plc in early 1976, where he worked in their international staff. In 1987 he became General Manager and a Director of Oil Search Limited. In 1994, Dr. Williams formed and led the team that created Novus Petroleum Limited, Australia's largest IPO of an upstream oil and gas company. Dr. Williams was also the Non-Executive Chairman of Nido Petroleum Limited. Dr. Williams became a Fellow of the Australian Institute of Company Directors and is also a Fellow of the Geological Society. He has served on a number of industry committees in various countries. He is a member of the Advisory Board of the Energy and Geoscience Institute, a division of the University of Utah affiliated with Imperial College, London. Dr. David Lawson Bremner DIRECTOR Dr. Bremner joined British Petroleum plc in 1977, where he worked in their international staff in London, Aberdeen, Alaska and San Francisco. He resigned from BP in 1984 to become Exploration Manager of Merlin Petroleum, a small start-up exploration company, based in San Francisco. After the sale of Merlin Petroleum in 1989 and a successful role in international petroleum consultancy, in 1995 he joined Monument Oil and Gas plc, based in London, as Exploration Manager. In 1997, Dr. Bremner was appointed Exploration Director for Monument, a role which he held until that company was sold in Since that time Dr Bremner has been engaged in international petroleum consultancy with a particular emphasis on new business development and has been active in exploration consultancy in the domestic United States. Dr. Bremner holds an honours degree and a Ph.D. in geology from the University of Glasgow, Scotland. MIRABAUD SECURITIES, M. HORN & CO. 6

9 EXECUTIVE DIRECTORS Peter Sadler CHIEF EXECUTIVE OFFICER Mr. Sadler is a graduate of Oxford University and London Imperial College. He commenced work with Schlumberger in 1978 and after obtaining his MSc, he joined Unocal as a petroleum engineer. Prior to being appointed as the Head of Engineering in 1996 by Novus (the forerunner of Indago), Mr. Sadler worked with companies such as Texas Eastern, Exxon, Fletcher Challenge, Agip and Shell. In 2000 he was appointed by Novus as Regional Manager Middle East. Mr. Sadler also sat on the Executive Committee of Novus. John Hurst EXPLORATION DIRECTOR Mr. Hurst obtained a B.Sc in geology from Hull University and a D. Phil and D.Sc in geology from Oxford University. In 1976 he joined the Greenland Survey mapping and exploration teams in Copenhagen. In 1983 he joined British Petroleum in London and was initially involved in regional exploration projects. He subsequently became Manager of the Basin Studies Group. He resigned from BP in 1992 and joined Total in Paris as Exploration and Production Adviser in carbonate petroleum systems to the Exploration Manager. In 1996 he joined Novus as a roving Exploration Consultant. He has managed since 1999 Novus' (and now Indago's) Middle East exploration group. 7 INDAGO PETROLEUM

10 T HE C OMPANY OPERATING STRUCTURE Peter Sadler and John Hurst are based in Dubai and are responsible for the day to day operations of Indago. Indago employs 6 senior staff and several contractors. Indago Oman Limited on behalf of the Bukha Joint Venture Partners operates the offshore facilities. A Production Operations Manager, 3 technicians and an office assistant, all based in Ras Al Khaimah, are responsible for the day-to-day activities. A Petroleum Engineer located in the Muscat office is responsible for reservoir and production monitoring. General management is provided by Indago's Dubai Office. MIRABAUD SECURITIES, M. HORN & CO. 8

11 INDAGO PETROLEUM ORGANISATIONAL STRUCTURE (SEPT 2005) Peter Sadler Chief Executive Officer John Hurst Exploration Director Miguel Soto Chief Financial Officer (acting) Gracia Valladian Executive Secretary & Office Co-ordinator Joseph Yue Office Assistant Shelley Watson Commercial Manager Appointed* WB Dev. Project Man. Jamie Parry Regional Ops Manager Paula Pedler Snr Petroleum Engineer Abduljalil Al Farsi Ops Manager Onshore Oman Mick McNaney Production Manager David Moore* Drilling Manager Lois Kape Geologist Azhar Ahsan Accounts Administrator Khaled Al Hashmi PRO Hamid Al Hajri Ops & Maint Tech Maria Fernandez Drilling Sec John Brown Ops Geologist Salim Al Salmi Accounts Administrator Halima Al Balushi Admin Secretary Ramsey Cabunoc Ops & Maint Tech Steve Hendry* Snr Drilling Engineer Appointed Snr Geophysicist Laith Albehacee Accounts Admin & PRO Manuel Del Rosario Ops & Maint Tech Ben Hennessy* Snr Drilling Supervisor Daniela Garrad Snr Geophysicist Jacob Philip Office Assistant Gary Morrison* Materials/Logistics Supervisor Thomas Lagler Technical Assistant Employees: 26 *Contractors: 6 Morris Ferris* Snr Completions & Welltest Engineer Source: Indago Petroleum 9 INDAGO PETROLEUM

12 T HE C OMPANY CORPORATE GOVERNANCE BOARD GOVERNANCE AUDIT COMMITTEE The Audit Committee will be chaired by Barry Goldberg. The Audit Committee will be responsible for monitoring the quality of internal controls and for ensuring that the financial performance of the Company is properly monitored, controlled and reported on. REMUNERATION COMMITTEE The Remuneration Committee will be chaired by Tim Eggar. The Remuneration will review the performance of the executive Directors and set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of Shareholders. NOMINATION COMMITTEE The Nomination Committee will be chaired by Tim Eggar. The Nomination Committee will be responsible for reviewing the structure, size and composition of the Board, preparing a description of the role, capabilities required for a particular appointment, identifying and nominating candidates to fill Board positions, as and when they arise. MIRABAUD SECURITIES, M. HORN & CO. 10

13 HEALTH, SAFETY AND THE ENVIRONMENT Indago has inherited safety attitudes and operational documentation from its original Australian parent. Prudent operating practices along with fit-for-purpose, current oil spill contingency plans and environmental assessments will continue to be implemented in excess of existing government requirements. These procedures will be updated to reflect changing operational needs and industry practice. In addition, following Admission, the Company intends to adopt practices to comply, so far as practicable and appropriate for a company of its size, with the main provisions of the Combined Code. The Company has adopted a share dealing code, based on the Model Code for Directors and relevant employees in accordance with the AIM Rules and will take proper steps to ensure compliance by the Directors and those employees. CONTRACTING AND PROCUREMENT In Oman there is an oversight committee with the Ministry of Oil and Gas (MOG) which requires a tender exercise for all contract awards over US$100,000. Following a pre-qualification phase, separate, sealed technical and commercial bids are sought and subsequently assessed by the committee. An evaluation is made by the operator and submitted for approval to the MOG. This process provides good transparency and accountability. The committee has been flexible when confronted with logical justification. A similar internal procedure is carried out in jurisdictions which do not have prescribed government controls. 11 INDAGO PETROLEUM

14 T HE U NITED A RAB E MIRATES AND O MAN The United Arab Emirates (UAE) and The Sultanate of Oman (Oman), enjoy a reputation for peace, prosperity and economic development. Unlike many of the nations in the region, political risk and major acts of terrorism have been non-existent for decades. UNITED ARAB EMIRATES POLITICAL STRUCTURE The UAE is a federation of seven emirates - Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras Al-Khaimah and Umm Al-Quwain. Political power is concentrated in Abu Dhabi, which controls the vast majority of the UAE's economic and resource wealth. The two largest emirates - Abu Dhabi and Dubai - provide over 80% of the UAE's income. There is a high level of political and economic autonomy within the individual emirates. Each emirate has its own ruler, controls its own natural resources and regulates much of its own commercial activity. The rulers of the emirates each serve as members of the Federal Supreme Council of the UAE incorporating both legislative and executive powers. The Council ratifies federal laws and decrees, and plans general policy. The Council of Ministers or Cabinet is described in the Constitution as "the executive authority" of the federation is headed by the Prime Minister who is chosen by the President in consultation with his colleagues on the Supreme Council. In June 1996, the UAE's Federal National Council approved a permanent constitution for the country. The current head of state, Sheikh Khalifa bin Zayed Al-Nahyan, took office in November 2004, following the death of his father Sheikh Zayed bin Sultan Al-Nahyan. MIRABAUD SECURITIES, M. HORN & CO. 12

15 ECONOMY The overall performance of the UAE's economy is heavily dependent on oil exports, which account for over 30% of total gross domestic product (GDP). Growth in real GDP was 6.4% in 2004, partially due to higher crude oil prices. For 2005, real GDP growth is projected to reach 6.5 %. The non-oil segment of the UAE's economy also is experiencing strong growth, particularly the petrochemicals and financial services sectors. The UAE is the 3rd largest economy in the Middle East with GDP of US$ 85.5 bn in The UAE's GDP has risen by 55% over the past 5 years, giving a growth rate of 10.9% per annum. The UAE has the highest per capita income after Qatar in the Arab world largely due to its oil and gas reserves. Since the early 1970's, the UAE has transformed itself into a highly prosperous economy. The UAE is mid-way through a 20 year economic diversification plan away from primary oil production. Currently, there are several major projects underway throughout the Emirates in various sectors including refinery and petrochemicals, tourism, aviation and airports, re-export commerce, and telecommunications. 13 INDAGO PETROLEUM

16 T HE U NITED A RAB E MIRATES AND O MAN OMAN POLITICAL STRUCTURE Oman has been ruled by Sultan Qaboos bin Said Al Busaidi since 1970, when he deposed his father in a bloodless coup. All power is concentrated in the hands of the Sultan, who also holds the top positions in the finance, defence, and foreign affairs ministries. Rules governing the succession to the throne were formalized in the 1996 Basic Law. There is no Omani legislative assembly, though there are two consultative bodies called the Majlis Al-Dawla and the Majlis Al-Shura. Together, the two chambers form the Council of Oman. The Majlis Al-Dawla is appointed, while the Majlis Al-Shura is elected. The last election was held in October Constitutional reforms in Oman have been part of the ongoing process of modernisation. The Basic Statute of the State, announced in November 1996, deals with every aspect of State legislation and human rights. It guarantees equality of all citizens before the law, freedom of religion, freedom of speech, the free press, the right to a fair trial and the right to form nationally based associations. It lays down the framework for all future legislation and provides for the succession. The Basic Statute also barred ministers from holding interests in companies doing business with the government. MIRABAUD SECURITIES, M. HORN & CO. 14

17 ECONOMY Oman's macroeconomic environment currently is strong, despite recent declines in oil production. Real GDP growth was 3.3% in 2004 and is projected to rise to 3.5% in Inflation was only 0.8% for Oman is heavily dependent on oil revenues, which account for around 75% of the country's export earnings and almost 40% of its GDP. Due to the maturation of its oil fields and the volatility of oil prices, the Omani government has made diversifying the country's economy a top policy priority. In the 1980s, this effort hinged on developing a domestic manufacturing base, but more recent initiatives have focused on the exploitation of Oman's other natural resources, particularly its natural gas reserves. Oman has large mineral and metal deposits, including silica, dolomite, copper and gold. In September 2003, the government announced that it was reviving a five-year-old plan to build a US$ 2.5 bn aluminium smelter, which is to begin operation in Oman's efforts to diversify the economy also include "Omanization", a program designed to increase the percentage of Omani citizens working in the private sector. At present, Omani nationals constitute only 10% of private sector employment. The government also has continued to attempt to attract foreign investment, particularly in light industry, tourism, and electric power generation. Foreign investment incentives include a 5-year tax holiday for companies in certain industries, an income tax reduction for publicly held companies with at least 51% Omani ownership, and soft loans to finance new and existing projects. The process of privatizing some state-owned industries is to be accelerated under a decree issues in July 2004, which will allow foreign ownership up to 100% in power generation and water. Oman became a member of the World Trade Organization (WTO) in October Movement continues towards an eventual customs union amongst the Gulf Co-operation Council (GCC) states. 15 INDAGO PETROLEUM

18 R EGIONAL E NERGY S UPPLY AND D EMAND The key factors governing the growth of natural gas demand in the region are: Increased use of natural gas for re-injection to boost declining oilfield production. Numerous gas-export related industries such as LNG schemes and petrochemical plants are now competing with domestic natural gas requirements. In particular growth in LNG demand on the Indian subcontinent is expected to underpin new gas export schemes. Substitution of natural gas for existing diesel-fired operations allows a greater proportion of refined products to be freed up for export. Gas-intensive industries such as cement manufacture, aluminium smelting and ceramic manufacturing have grown to take advantage of the confluence of cheap energy, a benign tax environment, and an abundance of cheap labour. Electricity demand has grown as economies have grown leading to corresponding growth in natural gas fired generation. The harsh climate requires extensive use of desalination and air conditioning which are energy hungry end-use applications. As such, despite the regions hydrocarbon resources there are opportunities to supply gas into its markets. There are shortfalls of natural gas supply evident today, and this is forecast to grow. MIRABAUD SECURITIES, M. HORN & CO. 16

19 MEDIUM TERM OPPORTUNITIES There is an opportunity to supply gas to the Federal Electricity and Water Authority (FEWA) power stations in the Northern Emirates which are burning significant volumes of liquid fuels due to a gas shortfall. Sharjah Electricity and Water Authority (SEWA) is expected to be short of gas by summer 2005, unless a new source materialises. This is due to declining gas production from the Sajaa field, which has also caused a reduction in the amount of Sharjah gas supplies to the growing Dubai market. SEWA is currently buying gas from Iran through a new UAE listed company, Dana Gas. Oman has developed its gas-based industry over the past few years and, although new gas fields and infrastructure are being developed, Qatari gas imports (via the Dolphin project) are required to make-up the shortfall that would otherwise occur within 2 to 4 years. LONGER TERM OPPORTUNITIES In addition to these short to medium term opportunities, there is a requirement for a project such as Dolphin to supply large volumes of gas to the UAE and Oman by Although the Dolphin Gas project has the potential to flood the market in the northern emirates and Oman, actual gas deliveries are still many years away and the cost of delivered gas will have to compete with cheaper gas from local fields. CONCLUSION Oman will face difficulty in filling a 9 to 16 Tcf shortfall without importing relatively expensive Qatari gas via the UAE. Within the UAE gas demand is likely to grow further beyond the forecast 8.2 Tcf deficit as soon as industrial users have security of supply. The estimated available market over the next 20 years is approximately 15 Tcf. 17 INDAGO PETROLEUM

20 A SSET P ROFILE NORTHERN ARABIAN GAS-CONDENSATE PLAY Indago has created a portfolio of drilling opportunities distributed along a trend which they call the "North Arabian Gas Condensate Play" (NAGP). Indago believes that its NAGP prospects have the scale to contain several Tcf of gas. The Oman mountain range stretches from the Musandam Peninsula in a southwards arc towards Muscat in Oman. These mountains have been created through the collision of the Arabian plate with an Island Arc complex, and this has created a foreland thrust belt. Typically, mountain regions such as these, and in particular the buried frontal deformation zone, are natural focal points for hydrocarbon migration. The Omani mountains are to some extent an extension of the Iranian Zagros Mountains. They formed at the same time and have many of the same geological elements which are so productive in Iran. The western mountain foreland area has few oil and gas fields as it has been relatively under-explored. In the north there are a number of gas-condensate fields such as Bukha, West Bukha-Hengam offshore Oman/Iran, and the Saja'a, Moveyiid, Khaif, Margham and Khubai fields in onshore U.A.E. At the south of the mountain arc there are other gas-condensate discoveries such as Hafar, Al Sahwa, Nadir and Hamrat Duru south-west of Muscat. Although separated by hundreds of km these fields are similar in terms of the geological elements that make them work. Indago believes that they are part of a continuous geological system that stretches along the mountain front. If the petroleum systems throughout the entire length of the fold belt are the same, then there is likely to be more gas awaiting discovery in the under explored area between the proven fields in the north and the south. MIRABAUD SECURITIES, M. HORN & CO. 18

21 This geological insight is nothing new and many of the major oil companies that explored the Middle East recognised that this was a potentially prolific gas play. But there was no economic incentive to explore for gas at that time and the acreage lay dormant. Recently the economic incentives for gas exploration have changed. Many of the Gulf countries now consume large quantities of natural gas and are prepared to pay for the security of additional long-term supplies. Source: Indago Petroleum 19 INDAGO PETROLEUM

22 A SSET P ROFILE OVERVIEW There are 4 concessions in Oman and 1 in the UAE in which Indago holds working interests. Indago Oman Limited (IOL) holds a 40% working interest and operatorship in Oman Block 8 which contains the Bukha and West Bukha fields. Other partners in this block include LG (50%) and Heritage (10%). LG is a large Korean company and Heritage is a Canadian listed oil and gas company. IOL holds a 40% working interest and operatorship in Oman Block 17. Other partners in this block include Atlantis (50%) and Heritage (10%). Atlantis was originally formed as an E&P subsidiary of the seismic company PGS, but is now owned by the Chinese company Sinochem. IOL and Indago Al Khaleej Limited (IAKL) hold a 100% working interest and operatorship in all other blocks. LEGAL TITLE There are a number of agreements in place between the relevant government authorities and the Indago group of companies. These include: The Exploration and Production Sharing Agreements (EPSA's) which detail the fiscal terms and work requirements for the Omani blocks; The Joint Operating Agreements (JOAs) which detail the conduct of joint venture operations for blocks where there is more than one partner. A Heads of Agreement for gas sales from the West Bukha field into the northern emirate of Ras Al Khaimah. MIRABAUD SECURITIES, M. HORN & CO. 20

23 EXPLORATION PORTFOLIO PROFILE An overview of the Indago portfolio, which sets out the Expected Ultimate Recoverable Reserves as agreed by Petronel, the independent technical consultant, and which form the basis of our valuation of the company, is set out below. INDAGO PETROLEUM LTD COMPETENT PERSON'S REPORT INDEPENDENT VOLUMETRIC ESTIMATE OF ASSETS Risked Expected Remaining Hydrocarbon Recovery Economics (100%) Economics (IPL share) Unrisked Unrisked Risked Unrisked Risked Recovery 100% 100% IPL Share IPL Share NPV EMV NPV EMV Mid Mid POS POS Sales Gas Cond+LPG Sales Gas Cond+LPG NPV (10%) EMV (10%) NPV (10%) EMV (10%) Block Asset (bcf) (mmb) Prospect WetGas (bcf) (mmb) (bcf) (mmb) (US$m) (US$m) (US$m) (US$m) Block 8 Bukha Block 8 West Bukha (Oman) RAK Hagil 1, , , RAK Hagil Lias/Trias RAK Ash Sham (part) RAK Digdaga Block 17 Ash Sham/Ghumdah Block 31 Jebel Hafit (Oman) 2, , , Block 31 Qumaira Block 31 Jebel Wa'Bah Block 47 Izz Block 47 Izz Deep Block 47 Adam Block 47 Sadood Block 47 Kabshat Block 47 Dham Total 6, , , Source: Technical Consultant 21 INDAGO PETROLEUM

24 A SSET P ROFILE PRODUCTION BUKHA Source: Indago Petroleum Indago is the operator of Bukha, Oman's only offshore producing field. Bukha has produced since 1994 but is now in decline. As estimated by Petrenel, the field contains an initial GIIP of 326 Bcf. Petrenel estimate that proven plus probable reserves of gas remain at Bcf, 4.60 MMbbl condensate and 1.0 MMbbl of LPG. The Bukha field fluids are contained in two zones known as the Thamama and the Mauddud. Both reservoirs are fractured carbonates which augment permeability and provide good flow rates from otherwise low porosity-permeability rocks. The reservoir has little aquifer support and depletes as a normal retrograde condensate field, with condensate dropping out in the reservoir as pressure declines and hence decreasing the condensate-gas ratio with time. MIRABAUD SECURITIES, M. HORN & CO. 22

25 This field derives its revenue from the sale of condensate and LPG. Bukha 1, a sub-sea completion, is connected back to the platform by a 1,186 metre, 6-inch flexible flow line with separate service and control umbilical. Bukha 2 is a surface completion. Produced fluids are exported from the platform by natural drive, via a 34km, 16 inch diameter pipeline to the Ras Al Khaimah Gas Commission (RAKGAS) processing facility, located at Khor Khwair in Ras AI Khaimah, UAE. No processing of produced fluids is carried out on the platform as this is all carried out at the RAKGAS plant. The field is mature and on a predicted decline, nevertheless it is expected to continue producing for 5 years or more. The projected economic limit of the field continues to be extended with the prevailing high oil price environment. Current end of field life is expected in Production, net to Indago during 2004 averaged 870 barrels of condensate and LPG per day and 13.9 MMscfd of gas. It is fiscally linked to West Bukha (in the same EPSA) and hence 90% of the liquids revenue after operating cost is available to recover costs incurred through the development of West Bukha. Bukha is not material in the context of the valuation of Indago. Nevertheless, as an asset operated by Indago it has established the credibility of the company in the region. 23 INDAGO PETROLEUM

26 A SSET P ROFILE DEVELOPMENT WEST BUKHA Source: Indago Petroleum West Bukha is the Omani portion of the West Bukha-Hengam field that straddles the Oman/Iran border in the Straits of Hormuz. The field is located within Oman Block 8 which also contains the existing Bukha field 22 km to the south-east. The Bukha Joint Venture (BJV) has been given permission by the government of Oman to develop the field, initially through a single well and wellhead jacket tied in through Bukha. The wellhead platform will have 6 available well slots to ensure that further upside could be accessed if suitable drilling locations can be identified. MIRABAUD SECURITIES, M. HORN & CO. 24

27 As estimated by Petrenel, West Bukha contains an estimated initial GIIP of 525 Bcf and CIIP of 54 MMbbl. West Bukha development is scheduled to commence as soon as possible with drilling of phase I commencing in late First gas is scheduled for late 2007 and phase II continuing in Development costs are estimated at around US$ 62 m for a single well development and US$ 88 m for 2 wells. A successful, 2 well development, if the simulation profile is achieved, would using NPV10 have a value of approximately US$120 m, equivalent to US$48 m net to Indago at a WTI price of US$ 30/bbl. It is proposed that the development costs will be two-thirds funded from project finance, though a more conservative estimate would be 50% project finance. The development plan for phase 1 consists of: Drilling and testing of 1 development well, West Bukha-2 (US$20.4 m) Installation of wellhead platform and pipeline tied to Bukha (US$34.8 m) Tie back and completion of West Bukha-2 (US$6.2 m) The main producing formation, the Mauddud - Mishrif is expected to be a low porosity fractured limestone and hence the main risk is reservoir effectiveness. Break even reserves are as estimated by management, 25 Bcf at an assumed WTI oil price of US$24/bbl for the initial development of phase I. Based on the operating expectations of management West Bukha is considered to be a robust project. 25 INDAGO PETROLEUM

28 A SSET P ROFILE PROSPECTS BLOCK 31 JEBEL HAFIT Source: Indago Petroleum At Jebel Hafit, Indago is targeting estimated mean reserves of 2.7 Tcf of gas, and 344 MMboe of condensate and LPG. This is a significant prospect. The Jebel Hafit prospect, named after the prominent mountain that juts out of the desert above this prospect, straddles the border between Oman and Abu Dhabi. The geological interpretation shows that the mountain is actually the surface expression of a deeper structure. It is a compressional anticline beneath a prominent surface mountain. The difficulty in readying this prospect for drilling arose from the former lack of interest in gas and the necessity of organising co-operation between the UAE and Omani governments to assemble the technical data, including conducting seismic surveys, across an international border. MIRABAUD SECURITIES, M. HORN & CO. 26

29 Kf Kn Knu Ksk Kl Khsr Js TRm Pk Pzh PCu Kf Tf Qal Taj Tsn Tdu Tdm Tdl Tur Tr Ks Zone of Ductile Deformation 30 J. Kf Kn Knu Ksk Kl Khsr Js TRm Pk Pzh Ev? 30 Ev? North 20 Seismic no-data zone 80 Tdl 80 Tdu Taj Knu Ksk Kl Khsr Js TRm Pk Pzh Ev? PCu Kf SEISMIC LINE IQS-54 Tf Taj Tsn Tdu Tdm Tdl Tur Tr Ks Qal Carbonate Platform Margin? Ksk Kl Kf Sumeini Frontal Thrust Khsr Frontal Sumeini Accretionary Wedge Js Twc Sum Ev? Carbonate Platform Margin? Qal Sumeini Accretionary Wedge Sum Tdu OMAN MOUNTAINS Jmh TRm Note: Mesozoic stratigraphy changes across interpreted Triassic extensional fault and Jurassic-Cretaceous structural hinge-line Kf Ku Pk Pzh PCu Tdl Tr Kf Tur Ks Qal Tf Taj Ts Tdu Tdm Tdl Tr Tur Ks Haw Kf Fiqa Fm., including "Juweiza" Member (Upper Cretaceous) Ku Undifferentiated Cretaceous, Sumeini Group "slope" sediments Kn Natih Fm. (Wasia Group) (Middle Cretaceous) Knu Nahr Umr Fm. (Wasia Group) (Middle Cretaceous) Ksk Shuaiba and Kharaib Fms. (Kahmah Group) (Lower Cretaceous) Kl Lekhwair Fm. (Kahmah Group) (Lower Cretaceous/Upper Jurassic ) Khsr Habshan Fm., Salil Fm., and Rayda Chert (Lower Cretaceous/Upper Jurassic ) Js Sahtan Group (Jurassic) Jmh Mayhah Fm., slope facies limestones (Middle-Upper Jurassic) Twc Jabal Wasa Fm. conglomerates? (Upper Triassic) Mahil Fm. (Triassic) Pk Khuff Fm. and Haushi group, undifferentiated (Permo-Carboniferous) TRm Pzh Ev PCu Undifferentiated Sumeini Group and Hawasina Complex (Permian-Cretaceous) Haima Group (Paleozoic) Evaporites (Infracambrain-Cambrian) Undifferentiated Precambrian, including basement Thrust Fault Normal Fault 25 Apparent dip in line of section 60 Apparent dip of overturned beds in line of section Seismic reflectors by 576 E South Temple Salt Lake City, Utah (801) Nevertheless, in 2003 Indago acquired state-of-the-art seismic data which confirmed the size and integrity of the subsurface structure. Jebel Hafit appears to be geologically analogous to the producing Margham and Sajaa field to the north in UAE. The imaging from the reprocessed seismic data is fair. The main reservoir target is in the Cretaceous (Natih/Shuaiba) carbonates at circa 5,000m depth. A gas condensate seep has been discovered by Indago field geologists on the mountain. Indago is targeting two working reservoirs, Mauddud and Thamama. Indago expects to be able to spud a US$ 24.8 well, including testing, at Jebel Hafit in September/October Structural Cross Section a-a ; North Jabal Hafit and the adjacent Oman (UAE) Foreland Basin by Daniel Schelling Scale = 1:50,000 (No Vertical Exaggeration) Structural Cross-Section a-a ; North Jabal Hafit Daniel Schelling Scale = 1:50,000 Structural Geology of Exploration Block 31; Central Oman Thrust Belt Enclosure # 5 a S 68 a N 68 October, 2003 Structural Geology International, LLC LEGEND POST-EMPLACEMENT SEQUENCES Upper Lower Tdm HAWASINA/SUMEINI ACCRETIONARY WEDGE SUB-THRUST STRATIGRAPHIC SECTION Source: Indago Petroleum 27 INDAGO PETROLEUM

30 A SSET P ROFILE RAS AL KHAIMAH HAGIL Source: Indago Petroleum Ras Al Khaimah (RAK) is the northern most Emirate of the United Arab Emirates. Currently the Emirate has limited oil and gas fields over which it can lay claim, and is dependent upon its neighbours for both gas and oil. However, Indago has a very promising prospect in Ras Al Khaimah called Hagil. The Hagil prospect contains 6 target reservoir horizons in two closures on separate thrust sheets. In the hanging wall of the Rahaba Thrust the Lias (Neyriz), Milaha, Upper Bih and Lower Bih (Khuff) are prospective, whereas in the hanging wall of the Tibat Thrust only the Upper Bih and Lower Bih are expected to be present. A well location has been chosen such that it will intersect all of these horizons in a reasonably crestal position. At Hagil, according to Petrenel, Indago is targeting estimated mean reserves of 2 Tcf of gas, and 294 MMboe of condensate and LPG. This is also a significant prospect. Seismic was acquired over Hagil in 2003 and this confirmed the presence of a significant structure. The geological interpretation suggests that Hagil is a faulted dip closed structure at Permo-Trias level, which is beneath the main thrust front. The Trap imaging has been much improved by recent specialist reprocessing of the seismic. The main reservoir target is Khuff carbonates which will be encountered first at 2,700 m and again at 4,200 m. The US$ 16.7 m, including testing, Hagil well is expected to spud at the start of October MIRABAUD SECURITIES, M. HORN & CO. 28

31 ASH SHAM Source: Indago Petroleum Ash Sham is located 4 km north-east of the Hagil prospect. It is a dip closed anticline above a thrust fault. The anticline is exposed at surface and 2 seismic lines located over the crest confirm its subsurface expression. The well will target lower Permian clastic reservoirs at 2 km. Although these reservoirs have not been tested locally they are important hydrocarbon bearing reservoirs in offshore Abu Dhabi and onshore Oman. The younger reservoirs in the exposed surface anticline were once gas condensate bearing. Due to uplift and exposure the hydrocarbons have dissipated. At Ash Sham, Indago is targeting an estimated gas recovery of 655 Bcf, and 80 MMbbl condensate. Indago expects to start drilling the US$ 5.4 m, including testing, Ash Sham well in August 2006 and will use the same drill team as used at Izz. 29 INDAGO PETROLEUM

32 A SSET P ROFILE BLOCK 47 ADAM & IZZ Source: Indago Petroleum MIRABAUD SECURITIES, M. HORN & CO. 30

33 ADAM Adam is 40 km from the PDO Cambrian discovery at Kauther-1 which flowed at 49 MMscfd/4,000 bpd. This prospect is a Cambrian closure beneath small Cretaceous gas pool. The reservoir target is Cambrian Amin sandstone formation at circa 4,200 m depth. Indago expects to spud a US$ 11.4 m well, including testing, at Adam in May IZZ Further to the south in Block 47 are a number of prospects where 2D seismic was acquired in One of these is the Izz prospect which has a more subtle surface expression which is best seen on satellite imagery. The acquisition of 2D seismic has confirmed the presence of a large buried structure. Izz is a Cretaceous closure over a salt pillow updip from the Khatmah gas discovery. The reservoir target is Cretaceous Natih/Sabsab carbonates at circa 2,500m depth. There are secondary targets in the Jurassic Hafina and Permian Khuff carbonates. Indago expects to spud a US$ 10.2 m well, including testing, at Izz either before or after drilling starts at Hafit. Source: Indago Petroleum 31 INDAGO PETROLEUM

34 A SSET P ROFILE LEADS Indago has an inventory of Leads some of which are nearly advanced to Prospect status; others are still in the early phase of definition. These Leads are briefly described below. RAK UNRISKED RECOVERABLE Depth Gas (bcf) Cond (mmb) * Management's preliminary estimates. Digdaga 2, * 19* Source: M. Horn & Co. DIGDAGA This Lead is a Hagil analogue. It is of comparable size and focused on the same reservoirs. There is a weak methane seep on top of it. It is located 30 km from Sajaa, the largest gas condensate field in the region. There is seismic covering the west side. This lead has been worked up to the stage where seismic now needs to be shot on the eastern limb to complete the definition of the Lead. As the seismic over the this lead is not complete, it has not been included in the valuation. MIRABAUD SECURITIES, M. HORN & CO. 32

35 Source: Indago Petroleum 33 INDAGO PETROLEUM

36 A SSET P ROFILE BLOCK 31 UNRISKED RECOVERABLE Depth Gas (bcf) Cond (mmb) * Management's preliminary estimates. Qumaira 2, * 37* Jebel WaBah 2, * 44* Yanqul 2, * 45* Source: M. Horn & Co. QUMAIRA This Lead is 30 km east-south-east of Jebel Hafit. It is cored by Cambrian salt which has associated bitumen and condensate bearing rocks. Indago has seismic on this Lead, which is currently being processed. Surface geology indicates a large closure. Seismic processing has proven challenging because of image problems derived from the signal/noise ratio. Results, however, are due in the next 3 months. If the seismic does not clearly define the crest of the structure, then alternative methods of definition will be required. It has not been included in the valuation. JEBEL WABAH This Lead is a very large surface anticline cored by an undoubted deeper structure. There is currently no seismic for this Lead, though the seismic scouting is complete. A decision now needs to be made as to whether to shoot seismic. The decision to shoot seismic at Jebel WaBah will be driven by the experience at Qumaira. If the problem with the signal/noise ratio can not be satisfactory resolved, then the expense of seismic will not be justified and other techniques of definition will be considered. As there is no seismic over this Lead, it has not been included in the valuation. MIRABAUD SECURITIES, M. HORN & CO. 34

37 YANQUL This Lead is located north-east of WaBah. There is structural relief at a depth of circa 2km. What is required is a determination of the extent of the closure. As there is no seismic over this Lead, it has not been included in the valuation. Source: Indago Petroleum 35 INDAGO PETROLEUM

38 A SSET P ROFILE BLOCK 47 UNRISKED RECOVERABLE Depth Gas (bcf) Cond (mmb) * Management's preliminary estimates. Sadood 2, * 0* Kabshat * 0* Dham 2, * 0* Izz Deep 3, * 0* Source: M. Horn & Co. SADOOD This Lead is located 10km north-east of the Hamrat Duru gas field. The surface geology indicates that there is a sub-surface structure, and this is supported by the reconnaissance seismic. Several new seismic lines are now required to map the closure. This is expected to be a dry gas lead. KABSHAT Indago believes that Kabshat is a satellite to the Hamrat Duru gas field. It is covered by seismic. It could be drilled now and therefore technically is a prospect, but Indago wants to shoot one seismic line to determine the position of any saddle between it and Hamrat Duru. As such, it has been valued as a Lead. DHAM The surface geology indicates the presence of a large sub-surface structure. Offset seismic 20 km to the south indicates that this is good sub-surface imaging terrain. The seismic line scouting has finished, and a decision to shoot seismic is pending. The signal to noise issue is mitigated somewhat by benign surface conditions. As there is no seismic over this Lead, it has not been included in the valuation. MIRABAUD SECURITIES, M. HORN & CO. 36

39 IZZ DEEP This Lead is covered by seismic. The seismic is currently being reprocessed for a better image at deeper horizons. It is a Khuff play, one of the main gas bearing reservoirs in the Middle East. Two nearby wells have gas and bitumen in the Khuff. The Yibal Khuff field is some 40 km to the south-west. Source: Indago Petroleum 37 INDAGO PETROLEUM

40 A SSET P ROFILE OPPORTUNITY COMMERCIAL ACTIVITIES AND MARKETING Indago, in parallel with its exploration and development activity, will undertake several commercial initiatives: Negotiation of a Gas Sales Agreement (GSA) for West Bukha gas with RAKGAS. Negotiation of a cost sharing Memorandum of Understanding for Jebel Hafit with the Abu Dhabi National Oil Company (ADNOC). MIRABAUD SECURITIES, M. HORN & CO. 38

41 NEW VENTURE OPPORTUNITIES Indago is also currently pursuing several possible new venture opportunities within its area of focus. The Board has agreed to date expenditure of US$ 2.37 m. However, if any of the new projects identified below come to fruition, further expenditure proposals will need to be put to the Board and they will need to be appraised in the light of available funds. There are four possible new ventures which have been identified and include: Acquisition of a block contiguous with Indago's existing acreage. If Indago were to acquire this asset, it would expect to spend US$ 5 m in the next 2 years on its development. This spend will cover signature bonus, seismic reprocessing and ancillary studies. At this stage, from what is known of this asset, a 75% probability of a drillable structure is predicted. Acquisition of a 2nd contiguous block* from a competitor. This block has proven reserves. The cost of acquisition and the drilling of one well is estimated to cost up to US$ 4.5 m. The block has sunk costs of US$ 34 m which can be recovered when development and production from a field commences. In joint venture with the Ras Al Khaimah government, Indago intends to spend approximately US$ 750,000 to reprocess seismic and to produce a development plan for a discovered field that already has 3 wells drilled in it. A well on structure has already tested for oil and gas condensate. Indago expects to be a 40% joint venture partner if any development subsequently were to take place. The fiscal terms as outlined are attractive. Evaluation of a "farm-in". This will cost US$ 100,000. The budgeted "farm-in" evaluation is one of several evaluation opportunities. * Indago is in the process of concluding an agreement with Anadarko for the purchase of their interests in Block 30, which lies immediately to the south-west of Block 47. This block has not been assigned any value. The block contains four comparatively small gas discoveries in Cretaceous carbonates. Anadarko has stated that the discoveries have potential to hold around 300 Bcf of sales gas reserves in total, though this is probably an over-optimistic estimate. There is some uncertainty as to whether the discoveries might be commercial as they stand currently. Indago may seek to commercialise this modest gas resource through integration with potential future gas discoveries in the area. Evaluation of this opportunity will require a detailed re-evaluation of the discoveries. 39 INDAGO PETROLEUM