Santos Joins Nexus in Gippsland Exploration

VIC/P39(v) Gippsland Basin
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Nexus Energy has signed a farmout agreement with Santos Offshore Pty Ltd for exploration in permit VIC/P39(V) located on the northern margin of Victoria's Gippsland Basin.

Subject to approvals Santos will earn a 37.5% equity interest in the permit by funding a portion of the Galloway-1 exploration well. Under the agreement Santos will assume the role of operator. Nexus also farmed out a 25% interest to Tap Oil in October last year leaving the company with a 37.5% participating interest in the project.

Nexus' share of well costs will be totally funded by the permit's farm-in partners and the Galloway-1 well is now scheduled to be drilled in the third quarter of 2006.

Managing Director Ian Tchacos said "Nexus is delighted with the new arrangement. We are very happy to continue our relationship with Santos and are pleased to have the wealth of exploration and operational skills that Santos brings to this project".

"This follows on from our Longtom project agreement and further consolidates our relationship with Santos" Mr Tchacos added.

In addition, a key benefit of Santos' farm-in to the VIC/P39(V) joint venture is ready access to an onshore rig already under contract to them. This will be available to drill the Galloway-1 well.

Nexus recently acquired close-spaced 2D seismic data in the permit, and the Galloway-1 well is designed to test an anticlinal structure identified with this data at both the Top Latrobe and Intra Latrobe levels. Galloway-1 will be drilled as a horizontal well from an onshore location using a land rig to intersect the target at an offshore location.

The seismic data indicates that Galloway-1 is more likely to contain oil rather than gas. If the structure is oil-bearing it has a mean probability of containing a recoverable volume of 28 million barrels.

An oil discovery at Galloway-1 has the potential for excellent economic returns as it could be rapidly brought onto production due to its onshore drilling location. Reservoirs in Top Latrobe and Intra Latrobe reservoirs have a history of being highly productive and will probably require only the discovery well and one other well to produce the entire reserve. If successful, significantly lower costs are expected for development and production operations at this onshore location than at any offshore location.

Mr Tchacos noted "The Galloway farm-out is another milestone in Nexus' aggressive Gippsland basin drilling program. It is a further example of our strategic plan to secure large interests in prospective exploration acreage and gaining leverage over a range of prospects".

The value potential of a discovery at Galloway has been estimated on the mean probability resource size of 28 million barrels and a US$40.00 per barrel oil price. With these assumptions additional value of $1.06 per Nexus share would be created by a discovery.

In addition VIC/P39(V) also contains the Angus prospect (see location map). Angus is similar to Galloway and also lies in geological proximity to the Esso operated Seahorse and Wirrah oilfields. Seahorse (14 million bbls oil reserves) was discovered in 1978 and is currently producing. Wirrah (~ 50 million bbls oil equivalent reserves) was discovered in 1982, and is yet to be brought onto production.

Both Galloway and Angus are interpreted to receive oil charge from the same source rocks as Seahorse and Wirrah. The Angus target has a potential recoverable volume of 6-10 million barrels and is ideally located to be drilled with a land rig as a follow-up prospect if the Joint Venture is successful at Galloway. The Vic/P39(v) targets were identified by Nexus exploration team and acquired via the government gazettal system.

"This is a further step forward in the Nexus long term strategy of acquiring and partnering. It also enables us to offer our shareholders significant exposure to highly prospective reserves upside without diluting our capital base, which would otherwise occur if funding was acquired through equity capital raisings," Mr Tchacos added.

Joint Venture Interests in the Vic/P39(v) permit following this farmout will be Nexus Energy with 37.5%; Santos as operator with 37.5% and Tap Oil with 25.0%

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