Nelson Resources Provides Operations Update

Nelson has received a report dated March 31, 2004 (the "McDaniel Report") evaluating its crude oil reserves in the Alibekmola, Kozhasai and North Buzachi fields in Kazakhstan as at December 31, 2003 from McDaniel & Associates Consultants Ltd. independent reserves evaluators of Calgary, Alberta, Canada. Nelson owns a 50% joint venture interest in Kazakhoil Aktobe LLP ("KOA"), with the Kazakh national oil company, Kazmunaigas. KOA holds the license to the Alibekmola and Kozhasai fields. A wholly-owned subsidiary of Nelson holds a 50% interest in the license to the North Buzachi field, with the other 50% interest held by CNPC International, an affiliate of the China National Petroleum Corporation.

The McDaniel Report assigns gross proved reserves to Nelson of 68.5 million barrels of light and medium crude oil and 54.8 million barrels of heavy crude oil. It also assigns total gross proved plus probable reserves to Nelson of 107.4 million barrels of light and medium crude oil and 79.8 million barrels of heavy crude oil. The McDaniel Report has been prepared in accordance with National Instrument 51-101 of the Canadian Securities Administrators (Standards of Disclosure for Oil and Gas Activities). Previous engineering reports for Nelson were prepared in accordance with National Policy 2-B of the Canadian Securities Administrators.

Oil Fields

The three oil fields are currently producing approximately 24,500 barrels of oil per day (bopd) (net 12,250 bopd to Nelson) from a total of 61 producing wells. Management believes that by continuing to focus on the planned investments on Nelson's current properties and by applying advanced recovery techniques and reservoir management strategies, it could increase production from the fields to approximately 100,000 bopd (net 50,000 bopd to Nelson) by 2008.

Alibekmola and Kozhasai

The Alibekmola and Kozhasai fields in north-western Kazakhstan are producing approximately 17,000 bopd (net 8,500 bopd to Nelson) from 19 producing wells. Based on a current reserves evaluation by McDaniel, the Alibekmola and Kozhasai fields have an estimated remaining proved and probable oil reserves of approximately 206 million barrels (103 million barrels net to Nelson) and approximately nine million barrels (four and one-half million barrels net to Nelson), respectively. Management anticipates production from the Kozhasai field rising from the current 1,000 bopd (500 bopd net to Nelson) to approximately 9,000 bopd (4,500 bopd net to Nelson) by the end of 2005.

Currently, oil is stabilized at the Kozhasai field before being trucked a distance of 71km to the Alibekmola field where it is processed before being pumped via the Kenkiyak-Atyrau pipeline for export. The current central processing facility ("CPF") for the Alibekmola field, where all of KOA's oil production from the Alibekmola and Kozhasai fields is processed, is planned to be upgraded, increasing the total capacity from the current approximately 17,000 bopd, to approximately 24,000 bopd by May 2004. Furthermore, a second CPF capable of processing 30,000 bopd is planned to be completed by early 2005, increasing the total processing capacity at Alibekmola to approximately 54,000 bopd.

Oil from the Alibekmola field can be transported for export through pipelines via Kenkiyak and Atyrau to: (i) either the Black Sea port of Odessa via pipelines operated by KazTransOil ("KTO") and Transneft; or (ii) the Black Sea port of Novorossisk via a pipeline operated by the Caspian Pipeline Consortium ("CPC"). Until May 2003, all production from the Alibekmola field was transported to Odessa by a combination of truck, rail and pipeline. Since May 2003, all production has been transported directly to Novorossisk via the Kenkiyak-Atyrau pipeline to the CPC pipeline. For the years 2004 to 2008, KOA's annual CPC quota is 17.7 million tonnes (approximately 132 million barrels). Although this quota is sufficient for KOA's current level of production, there can be no assurance that this quota will continue to be sufficient for KOA's production in the future.

The total capital expenditure at the Alibekmola and Kozhasai fields for 2003 were U.S. $66.3 million and U.S.$0.4 million, respectively. Management estimates that the total capital expenditures for 2004 will be U.S.$117.6 million at the Alibekmola field and U.S.$6.2 million at the Kozhasai field.

Currently, out of the total of 35 wells drilled within the Alibekmola license area, there are 17 producing wells. An additional 13 wells are expected to be drilled in 2004 in accordance with the annual working program for 2004. The total well count for the Alibekmola license area at the end of 2004 is expected to be 31. However, some of these wells will be converted to water injection wells and therefore the actual producing well count will be less than 31. The full field development plan for Alibekmola consists of a total of 71 wells, 54 of which would be targeted as producers and 17 as water injection wells.

During 2004, KOA intends to operate at least four drilling rigs, with initially five rigs operating at Alibekmola. In May 2004, KOA plans to move one of these rigs to Kozhasai to commence drilling of the pilot production appraisal wells. The field development plan for the Alibekmola field includes drilling of a second appraisal well in the northern portion of the field in 2004 which was spudded in late January 2004. The remainder of the total of 13 wells planned to be drilled at Alibekmola will be production or water injection wells. Water injection for reservoir pressure maintenance is planned to commence at the Alibekmola field by the end of 2004. This will be done by converting existing producing wells to water injecting wells. On average, the wells at Alibekmola and Kozhasai have taken between 80 to 90 days to drill from spud to rig release.

North Buzachi

The North Buzachi field, located in western Kazakhstan, is currently producing approximately 7,500 bopd from (3,750 bopd net to Nelson) of heavy crude oil from 42 producing wells. Based on a current reserves evaluation by McDaniel, the North Buzachi field has an estimated remaining proved and probable heavy crude oil reserve of approximately 160 million barrels.

It is expected that by mid 2004, there will be three rigs operating at North Buzachi. On average, the wells at North Buzachi have taken between five to seven days to drill from spud to rig release.

The North Buzachi CPF is also expected to be upgraded by the end of 2004 allowing all oil produced from the North Buzachi field to be completely processed at the field. The upgrade is designed to increase the total processing capacity at the North Buzachi field from the current 10,000 bopd to 15,000 bopd and will eliminate dependency on third party processing. The total capital expenditure at the North Buzachi field for 2003 was U.S.$11.3 million and management estimates that the total capital expenditures for 2004 will be U.S.$104.3 million. A full field development plan for the North Buzachi field was approved by the Kazakh Central Development Commission ("CDC") on June 26, 2003. The field development plan envisages drilling of an additional 553 wells. Of these, it is anticipated that 449 will be production wells and 104 will be water injection wells for reservoir pressure maintenance. According to the approved full field development plan, these wells are planned to be drilled between 2004 and 2018, but the joint venture partners proposed to make an application to amend the plan in order to significantly decrease the period for drilling such wells.

Currently, out of the 174 wells on the North Buzachi field, there are 42 producing wells and two wells used for water disposal. The 134 Soviet era wells have been abandoned or suspended and are not in use. Nelson anticipates the drilling of at least 15 wells, 13 of which will be producing wells and two of which will be water injection wells which is in accordance with the field development plan. However, permission is being sought from the Kazakh authorities to increase the drilling program to total 58 new wells, 40 of which will be producers with the remaining 18 wells scheduled to be water injection wells.

From the North Buzachi field oil can be transported by the Aktau-Atyrau-Samara pipeline for transit shipment via Russia and Ukraine to Odessa or through the port at Aktau with onward transportation via either the Makhachkala-Novorossisk pipeline or via Baku-Batumi rail road. Currently, there are no long-term volume commitments regarding the sale of crude oil production from the North Buzachi field. The North Buzachi Hydrocarbon Contract permits export of up to 100% of its production. However, in 2002 and 2003, the Ministry of Energy assigned the licence holders a quota of approximately 15% to supply to the Atyrau refinery for domestic use. There is no requirement to make these sales to the local market, but the Ministry of Energy can enforce them by controlling export pipeline access quotas. Nearly 16% of the North Buzachi field production in 2003 was delivered to Atyrau refinery for domestic use. The price realized for these sales was substantially lower than world market prices at that time. Prices in the local market have been in the range of U.S.$9-12 per barrel including VAT and do not reflect changes in world oil prices. Pricing on the local market is influenced by season factors. During winter the Government of Kazakhstan usually bans fuel exports for about six months. During harvest time there is usually a ban on diesel oil export. Those actions significantly reduce the market value of local crude oil.

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