Niko Reports on Second Quarter Operations

Niko Resources Ltd. has reported its operational results for the three months ended June 30, 2008.

Operational Highlights:

New Ventures

- In May of 2008, Niko signed a production sharing contract (PSC) in the Kurdistan Region of Iraq whereby it will operate and currently has a 36 percent participating interest in the 846 square kilometer block.

- In July of 2008, Niko signed a Heads of Agreement whereby it will operate and earn a 75 percent participating interest in a 16,845 square kilometer block in Madagascar.

Exploration

- In Pakistan, a contract has been awarded to conduct a 3,200-square-kilometer 3D seismic program.

- In the Kurdistan Region, field scouting began and a tender for a 300 to 500-kilometer 2D seismic program will be issued shortly.

- In D6, the L1 well was the first discovery in the Pleistocene channel complex.

Development

- D6 gas development is expected to start-up in the third calendar quarter of 2008. Volumes are expected to ramp-up to 2.8 Bcf/d (280 MMcf/d working interest to the Company).

- D6 oil development is expected to start-up in the third calendar quarter of 2008. Expected peak oil production is 40,000 bbls/d (4,000 bbls/d working interest to the Company).

- The development plan for the D6 satellite fields was submitted.
 

Operations Update:

India

D6 BLOCK:

Exploration: The MK-1 Cretaceous exploration well, located 11 kilometers from the MA oil development, was drilled during the quarter, the rig has been released and the well results are under evaluation. Subsequent to June 30, 2008, the L1 well, located just outside the Dhirubhai 1 and 3 development area, was the first discovery in the Pleistocene submarine channel complex play. This complex extends over a significant portion of the block, particularly in the northern and eastern areas.

Gas Development: The Dhirubhai 1 and 3 discoveries are expected to start production during the third calendar quarter of 2008.

The development plan for the Dhirubhai 1 and 3 gas fields provides for natural gas production at a rate of 2.8 Bcf/d (280 Mmcf/d working interest to the Company) envisaged within the first year of production operations. The Phase I initial field development costs are estimated at US$5.2 billion (US$520 million net to the Company). The Company had spent US$328 million to June 30, 2008 of the US$520 million estimated for the project. Fourteen of the planned 18 Phase I wells will be tied in after start-up. The development provides flexibility in the critical components of the facilities to increase production to 4.2 Bcf/d (420 MMcf/d working interest to the Company).

The development plan for eight of the natural gas discoveries in the D6 Block has been submitted to the Government of India. The discoveries are adjacent to the Dhirubhai 1 and 3 gas fields that are currently under development. It is intended that these satellite discoveries be tied back to the Dhirubhai 1 and 3 facilities. Numerous other prospects have been identified in deeper water areas of the block where further upside potential will be evaluated.

Oil Development: Production from the MA discovery is expected to commence in the third calendar quarter of 2008.

The field is estimated to have a peak oil production rate of 40,000 bbls/d (4,000 bbls/d working interest to the Company). The initial field development costs, excluding the FPSO, are estimated at US$1.5 billion (US$150 million net to the Company) and the Company had spent US$52 million to June 30, 2008. A large portion of these costs will be spent subsequent to start-up to drill and tie in four of the planned six oil development wells and after a period of oil production, to convert some of the oil wells to gas producers.

NEC-25 BLOCK: Geotechnical and geophysical studies have been completed with results used in the selection of drilling locations. One well, B3, was drilled during the quarter. The rig has been released and the well results are under evaluation. Additional exploratory locations are planned to be drilled in the coming year.

The offshore environmental study has been completed and onshore studies are in progress. Development plans have been submitted for the six gas discoveries that have been declared commercial by the Indian regulatory authorities.

CAUVERY: Two wells were drilled in Cauvery during fiscal 2008 and petrophysical analysis of the electric logs indicated no significant hydrocarbons were encountered in the wells. The 2007 Cauvery 3D seismic program was completed in September 2007. A total of 915 square kilometers of seismic data have been acquired on the Block. The seismic has been processed and drilling prospects will be identified to allow drilling of three new locations in early calendar 2009.

D4 BLOCK: In the deepwater block, MN-DWN-2003/1 (D4), located in the Mahanadi Basin, analysis of the 2,365-kilomete 2D seismic acquisition program has been completed. Based on the analysis, a further 2,800-kilometre 2D rseismic program and a 3,600-square-kilometer 3D seismic program have been designed and acquisition is underway with completion expected in late calendar 2008. Once the new seismic data is processed and interpreted, initial drilling locations will be selected, possibly as early as mid-calendar 2009. Drilling is expected to follow shortly thereafter.

HAZIRA: The Hazira field is currently producing 47 MMcf/d (16 MMcf/d working interest to the Company). Workovers for onshore wells are ongoing. A new transition 3D seismic program is planned for later in calendar 2008 to explore for deeper oil and gas targets in the eastern half of the Hazira field.

SURAT: Current production from the Surat field is approximately 8 MMcf/d. This includes production from the three wells drilled in fiscal 2008.

Bangladesh

BLOCK 9: Two wells in Block 9, Bangora-1 and Bangora-5, are currently producing at a combined facility constrained rate of more than 70 MMcf/d (47 MMcf/d working interest to the Company). Facilities upgrades have commenced and are expected to allow production targets to increase to nearly 120 MMcf/d (80 MMcf/d working interest to the Company) by the fourth calendar quarter of 2008. A condensate plant module is scheduled to be installed and operational by mid-calendar 2009, which will increase condensate yields. Further drilling prospects have been identified south of the producing Bangora structure on the 40-kilometer-long Bangora-Lalmai anticline. Drilling is planned to commence on these prospects when a drilling rig is available.

FENI AND CHATTAK: Production from the Feni field is 4 MMcf/d. Future drilling activities at Feni and Chattak remain postponed pending resolution of overdue payment for gas owed to the Company by the Government of Bangladesh.

PAKISTAN: Four production sharing agreements (PSAs) were signed in March 2008 and a contract has been awarded to conduct a 3,200-square-kilometer 3D seismic program, which is expected to commence data acquisition in late calendar 2008.

KURDISTAN REGION: In May of 2008, the Company signed a PSC for the Qara Dagh block. Field scouting is underway and a tender for a 300 to 500-kilometre 2D seismic program will be issued shortly with data acquisition expected to commence later in the third quarter of calendar 2008.

MADAGASCAR: In July of 2008, the Company signed a Heads of Agreement whereby it has farmed-in to a production sharing contract for a property located off the west coast of Madagascar. The agreement is subject to the execution of definitive agreements and the approval of the Office of National Mines and Strategic Industries, who act on behalf of the Republic of Madagascar and the Company is awaiting approval.

India

Cauvery - The Company was awarded 100 percent interest in the Cauvery Block, which is located in southern Tamil Nadu, in the NELP-V bidding round in 2005. The block is in the exploration phase and has mainly oil potential.

Capital expenditures during the quarter were mainly for the carrying costs of the block. The remaining capital expenditures related to the minimum work program are estimated at US$7.5 million, which must be spent within three years of the issuance of the Production Exploration Licence. The seismic has been processed and drilling prospects will be identified to allow drilling of three new locations in early calendar 2009.

D4 - The Company was awarded a 15 percent interest in the D4 Block, located in the Mahanadi Basin offshore the east coast of India, as part of the NELP-V bidding round in 2005. The block, which is currently in the exploration phase, encompasses more than 17,000 square kilometres. Analysis of a 2,365-kilometer 2D seismic acquisition program has been completed. Based on the analysis, a further 2,800-kilometer 2D seismic program and a 3,600-square-kilometer 3D seismic program have been designed and acquisition is underway with completion expected in late calendar 2008. Once the new seismic data is processed and interpreted, initial drilling locations will be selected, possibly as early as mid-calendar 2009. Drilling is expected to follow shortly thereafter.

The estimated cost of the Phase I commitment, which includes seismic and drilling three exploration wells, totals US$97.6 million (US$14.6 million net to the Company), which must be expended by September 2009. Capital expenditures during the quarter and forecast expenditures for fiscal 2009 are primarily for the seismic programs described above.

D6 - The Company has a 10 percent working interest in the 7,645-square-kilometer D6 Block. The block was awarded to the Company and its partner in the Government of India's first international bid round in 1999. Development of the Dhirubhai 1 and 3 natural gas fields and the MA oil field is substantially complete and exploration is ongoing on this block.

Gas Development: The Dhirubhai 1 and 3 discoveries are expected to commence production during the third calendar quarter of 2008.

The development plan for the Dhirubhai 1 and 3 gas fields provides for natural gas production at a rate of 2.8 Bcf/d (280 Mmcf/d working interest to the Company) envisaged within the first year of production operations. The Phase I initial field development costs are estimated at US$5.2 billion (US$520 million net to the Company). The Company had spent US$328 million to June 30, 2008 of the US$520 million estimated for the project. Fourteen of the planned 18 Phase I wells will be tied in after start-up. The development provides flexibility in the critical components of the facilities to increase production to 4.2 Bcf/d (420 MMcf/d working interest to the Company).

The development plan for eight of the natural gas discoveries in the D6 Block has been submitted to the Government of India. The discoveries are adjacent to the Dhirubhai 1 and 3 gas fields that are currently under development. It is intended that these satellite discoveries be tied back to the Dhirubhai 1 and 3 facilities.

Oil Development: Production from the MA discovery is expected to commence in the third calendar quarter of 2008.

The field is estimated to have the capacity for a peak oil production rate of 40,000 bbls/d (4,000 bbls/d working interest to the Company). The initial field development costs, excluding the FPSO, are estimated at US$1.5 billion (US$150 million net to the Company) and the Company had spent US$52 million to June 30, 2008. A large portion of these costs will be spent subsequent to start-up to drill and tie in four of the planned six oil development wells and after a period of oil production, to convert some of the oil wells to gas producers.

Capital expenditures at D6 in the quarter were $84.9 million. Spending during the quarter related primarily to natural gas and oil developments, but also included one exploration well. Forecast activity for fiscal 2009 includes the continuation of the gas development for the Dhirubhai 1 and 3 natural gas fields, development of the MA oil field and additional exploration drilling.

Hazira - The Company has a 33 percent working interest in the 50-square-kilometer Hazira onshore and offshore block on the west coast of India, which lies adjacent to a large industrial corridor about 25 kilometers southwest of the city of Surat. This field commenced gas production in 1996 and oil production in March 2006.

Capital expenditures in the quarter were primarily related to well recompletions for natural gas wells. Capital expenditures forecast for fiscal 2009 include a new transition 3D seismic program, various well recompletions and upgrading of facilities.

Surat - The Company was awarded rights to the Surat Block in July 2001 and after completion of the exploratory phase retained a development area of 24 square kilometers containing the Bheema and NSA shallow natural gas fields. These fields have been producing natural gas since April 2004.

The remaining capital expenditures of putting the three new wells into service were incurred during the quarter. There is no capital activity planned for fiscal 2009.

NEC-25 - The Company has a 10 percent working interest in the NEC-25 Block, which covers 10,755 square kilometres in the Mahanadi Basin off the east coast of India, and was awarded to the Company and its partner in the Government of India's first international bid round in 1999. Under the production sharing contract (PSC), the Company and its partner have capital commitments for Phase II exploration, which includes seismic and two exploration wells. To date, the Company and its partner have drilled sufficient wells to meet the commitment. Capital expenditures in the quarter were $6.5 million, primarily for the acquisition of 3D seismic and drilling the B3 well. Capital expenditures forecast for fiscal 2009 include environmental studies and additional exploratory drilling.

Development plans for the six discoveries that have been declared commercial by the Indian regulatory authorities have been approved by the Joint Venture's Operating Committee and submitted to the Government of India.

Bangladesh

Block 9 - In October 2003 the Company acquired a 60 percent interest in Block 9, a 6,880-square-kilometer onshore block which encompasses the capital city of Dhaka. This field began natural gas production in May 2006 and commerciality was declared in December 2006. The Company and its partner have capital commitments for Phase I exploration, which includes seismic and the drilling of three wells and, in certain circumstances, up to 10 wells. The Company and its partner have completed the seismic and have drilled six wells that apply towards the commitment.

Capital expenditures during the quarter were $2.1 million. Expenditures were to commence the tie-in of the Bangora-3 well, for well testing and for upgrading of the production facility. The remaining forecast capital spending for fiscal 2009 includes completing the tie-in of the Bangora-3 well, continued work upgrading the facility and continued well testing.

Feni and Chattak - The Feni field covers 43 square kilometers and is located 6 kilometers west of the main natural gas line to Chittagong. The Company has been producing natural gas from the field since November 2004. The Chattak structure covers 376 square kilometers and rights to this block were obtained in October 2003. The upper fault block to the west previously produced from one well, while the down-thrown eastern fault block has not been drilled.

Capital expenditures during the quarter were made primarily on carrying costs of the blocks. Future drilling activities at Feni and Chattak have been postponed pending resolution of overdue payment for gas owed to the Company by the Government of Bangladesh.

Pakistan

Four production sharing agreements (PSAs) were signed in March 2008 and a contract has been awarded to conduct a 3,200-square-kilometre 3D seismic program, which is expected to commence data acquisition in late calendar 2008. Capital expenditures of $0.6 million during the quarter were for annual fees required as per the PSAs. Remaining forecast capital expenditures for fiscal 2009 are primarily for seismic acquisition.

Kurdistan

In May of 2008, the Company obtained an interest in the onshore Qara Dagh block in the Sulaymaniyah Governorate of the Federal Region of Kurdistan in Iraq, which covers approximately 846 square kilometers. The Company currently has a 36 percent interest and carries the proportionate cost for the government's interest resulting in a 45 percent cost interest. Field scouting is underway and a tender for a 300 to 500-kilometer 2D seismic program will be issued shortly with acquisition expected to commence later in the third quarter of calendar 2008. Capital expenditures during the quarter were for various bonuses required as per the PSC. Remaining forecast capital expenditures for fiscal 2009 include various payments under the PSC, a 2D seismic program and drilling one exploration well.

Madagascar

In July of 2008, the Company signed a Heads of Agreement whereby it has farmed-in to a production sharing contract (PSC) off the west coast of Madagascar. The agreement is subject to the execution of definitive agreements and the approval of the Office of National Mines and Strategic Industries, which acts on behalf of the Republic of Madagascar and the Company is awaiting approval.

The PSC covers 16,845 square kilometers in water depths ranging from shallow water to 1,500 meters. The joint venture is currently reprocessing 7,600 kilometers of 2D seismic, which is to be followed by a 3,000-square-kilometer 3D seismic program planned to commence in the first quarter of calendar 2009. Forecast capital expenditures for fiscal 2009 relate to the planned seismic.

 

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