Nautical Creates Solid Asset Platform, Cites 2008 Drilling Ops

Kraken Discovery
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Nautical Petroleum has announced its final results and a portfolio update for the year ended June 30, 2008.

Commenting on the results Steve Jenkins, Chief Executive Officer of Nautical said, "Nautical's progress over the past twelve months has resulted in the creation of a solid asset platform from which reserves and resources, production and revenues are now firmly in sight for our shareholders.

"Following the success on Kraken at the end of 2007 and the work carried out on the Mariner field, the Company has reserves of 23 million barrels and resources of a further 94 million barrels, in addition to our £20 million of cash in bank.

"We look forward to the future with a high level of confidence."

The Company maintained its specialist focus and has achieved considerable progress through a wide ranging program of asset appraisal activity aimed at the key objectives of near term production development and early oil flow.

The prospectivity of the Company's license portfolio was further endorsed by a series of farm-in transactions, which have now completed, on terms which clearly evidence industry partner confidence in the quality of Nautical's assets. 5 wells and 1 seismic acquisition, with a combined cost of £46 million, have been farmed out. Partners will pay £50 million resulting in a £4 million surplus and a significant contribution to Nautical's strong cash position.

In addition to the 23mmbo of net probable reserves in Mariner, the Company has greatly increased net contingent resources, achieving a step change from 56 mmbo in the 2007 Report to 94 mmbo - a 68% increase. This is accounted for primarily by results for the 'cornerstone' Kraken and Mariner discoveries. In oil resource terms, Nautical shareholders have benefited significantly from the exceptional gains associated with the considerable progress made over this period.

Portfolio Management

Nautical has had exceptional success in attracting industry participation in sharing risk by farming-in to the portfolio. The commercial skills of the management team have been demonstrated by the ability to successfully close deals on highly beneficial terms.

While drilling results have been mixed, the execution of drilling projects has been exemplary. Management has demonstrated a consistent ability to plan effectively and complete on time and within agreed budget. This performance has enhanced the Company's standing both in the industry and with the regulatory authorities.

While the prime focus has been on the discovered 'cornerstone assets', progress has also been made on the extensive portfolio of high graded prospects. The portfolio has been successfully expanded with partners in on-shore Europe, with further additions secured in France.

Nautical entered into a new exciting phase of its development, drilling its first operated well on the Kraken discovery - a well which confirmed oil in the main reservoir and found further oil in a lower sand, resulting in an increased oil column and increased resources. This was followed by 2 operated exploration wells on Mermaid and Selkie.

The Company was pleased to welcome a new operator on Mariner (StatoilHydro) and looks forward to the development of both Mariner and Kraken. The focus continues to be to build and manage a portfolio of heavy oil assets, primarily on the East Shetland Platform by means of licensing rounds the most cost effective acquisition route. Nautical will continue to drill both appraisal and exploration wells but has successfully attracted partners which has limited our financial exposure and enabled your company to maintain a healthy cash balance despite the high level of drilling activity, seismic acquisition and driving the Mariner and Kraken developments forward. Nautical maintains its position as the only UK listed company offering significant exposure to a portfolio ranging from heavy oil developments to large exploration prospects.

The Company's portfolio now has 3 solid opportunity legs, the first and second being developments of Kraken and Mariner and the third an extensive portfolio of appraisal / exploration projects maintaining balance. The combined portfolio is now 17 blocks (13 licenses) with Nautical operating 7 blocks (5 licenses).

Kraken - Successful Appraisal Well

Nautical's first operated well (9/2b-2) was the successful well on the Kraken accumulation 2.7 kilometers north of the 9/2-1 well encountering heavy oil in both the main Heimdal sand and lower sands. The result exceeded Nautical's expectations pushing the oil down to (ODT) down 51 meters, giving a gross hydrocarbon column of at least 77m of lower viscosity than predicted oil. The well result indicates a large oil accumulation which the Company and its aligned Joint Venture partners are determined to develop in the shortest possible timeframe. In order to achieve this, both development and technical studies are either completed or ongoing. A further appraisal well was drilled in September / October 2008 on the extreme north-eastern flank of the mapped structure. Submission of a field development plan is anticipated before the end of 2009.

Mariner - A New Energized Operator

StatoilHydro purchased Chevron's equity in Mariner, East Mariner and Bressay and became operator in October 2007. Nautical is particularly pleased that the new Operator shares its enthusiasm for heavy oil in the East Shetland Platform and endorses Nautical's heavy oil strategy. StatoilHydro is aggressively leading the joint Mariner and East Mariner group to develop both accumulations, a vigour illustrated elsewhere in the drilling and production testing of a Bressay well (directly northeast of Kraken).

Both the new 3D and ocean bottom cable surveys were acquired in the summer with results expected by the end of 2008. This accelerated program was the first operational activity for 11 years over the Mariner accumulation.

The Joint Venture will now proceed to submit a field development plan (FDP) covering both reservoirs in mid 2010, heralding the long awaited first oil from Mariner.

Further Significant Appraisal and Exploration Opportunities

On both our operated blocks and as an active joint venture partner, we continue to acquire seismic data and carry out integrated studies over the blocks to elevate leads to drillable prospects, before releasing the potential through drilling.

The large Jurassic Hydra prospect was confirmed by acquiring our first operated seismic data acquisition and this will be drilled in October 2008, to be followed by a well on Catcher in 2009 (28/9 and 28/10b) postponed from 2008 due to the operators high level of activity elsewhere.

Work continues apace on Merrow in the East Irish Sea basin confirming a large prospect at both Triassic and Permian levels. Contingent resources have increased on the Tudor Rose discovery due to mapping of reprocessed 3D seismic and new seismic is planned over the Scylla channel (contiguous and directly west of the Kraken discovery).

Nautical has been very successful in mitigating risk by farming-out both exploration and appraisal wells, first to Celtic Oil Limited, then Canamens Energy Limited and Silverstone Energy. During the period further farm-ins were agreed with Canamens over blocks 8/25a, 9/2b and 3/27a, thus the impact of the unsuccessful exploration wells on Mermaid and Selkie were minimal with the Company having little financial exposure to the just completed Kraken appraisal well and the forthcoming Hydra exploration well whilst retaining 35% equity interests in both. Nautical will continue to attract new partners to opportunities and aims to retain an equity interest of 30-50% in operated blocks and a meaningful interest in non-operated licenses. Portfolio management includes the high grading of the blocks resulting in the relinquishment of non-prospective blocks. However, these will be replaced by new opportunities through farm in and most likely through license awards.

Nautical's extensive database and understanding of the hydrocarbons systems over the East Shetland Platform has enabled Nautical to attract new partners and retain existing co-venturers in high grading blocks for application in the 25th Seaward Licensing Round. In addition we have joined with our existing operators in making selective applications in the Moray Firth. The blocks are likely to be awarded at the end of 2009 or in the new year. Further successful French permit applications at Pontenx and Gex will augment the portfolio when officially awarded.


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