Northern Revises 2011 Production Forecasts

Northern announced that it will be revising its 2011 production forecasts and is making changes to reserve estimates in the Netherlands. The adjustments concern three of the five gas fields operated by Northern.

The revisions to reserves follow an ongoing economic and technical evaluation. Reprocessing of the 3D seismic data over Geesbrug and Wijk en Aalburg fields, plus much of the rest of the Netherlands acreage has been underway for some time. When it has been received and interpreted, the static and dynamic field models will be updated with the production data later this year, it will then be possible to make a further assessment of the reserves. Northern has not as yet had the opportunity to review these reserve adjustments with joint venture partners but believes it to be prudent to make a reserves revision now.

The revisions are as follows:


Previous 1P

Gas (Bscf)

Revised 1P

Gas (Bscf)

Previous 2P

Gas (Bscf)

Revised 2P

Gas (Bscf)

Geesbrug 73.63 60.22 137.85 72.79
Grolloo 6.44 2.29 10.52 3.00
Wijk en Aalburg 3.82 0.36 5.49 2.83

The above revisions reduce the Group's 2P reserves by 75.24 Bscf, which is the equivalent of 12.97 million barrels of oil equivalence. When the Company issued its results for the six months ended 30th June 2010, it reported Group 2P reserves of 102.67 million barrels of oil equivalence.

Following these changes to reserve estimates for Geesbrug, Grolloo and Wijk en Aalburg, the Company now expects to report a loss after tax for the year ended December 31, 2010 as a consequence of the resulting additional non cash depletion and impairment charges to the income statement. Average production for 2010 was approximately 1,200 barrels oil equivalence per day. The Company expects to report 2010 revenue of approximately €15 million, broadly in line with market expectations.

Average production for the first four months of 2011 has been just over 1,900 barrels oil equivalence per day.

On average Dutch gas prices have increased by approximately 13% over the first four months of 2011.

At Grolloo, which started commercial production in late 2009, the initial plan had been to install compression and or other surface equipment to aid and increase production once the pressure had stabilized and there was an observable influx of supplementary gas flow from the lower permeability reservoir matrix, allowing for the basis of design for the equipment. Until now no such stabilization has been observed.

Northern considers that it is not feasible to add compression in time to make a material impact to 2011 gas production. In conjunction with preparation of the Annual Report and Accounts for 2010 and for the purposes of production projection and reserve assessment for the Grolloo gas field, Northern has taken the decision to adopt what is considered to be the more conservative view that pressure support from lower permeability reservoir matrix will not occur.

At Wijk en Aalburg, which came into commercial production in December 2010, Northern has experienced the production of increasing quantities of oil, followed by increasing quantities of water, which has now affected production levels.

There are several possible explanations for such behavior. A possibility could be a near borehole build up of asphaltenes inhibiting flow. The well also has a geological fault intersecting the base of the reservoir sequence which may be acting as a conduit for the influx of liquids. It could also be a delay to influx of lower permeability reservoir matrix gas, as at Grolloo. The issues are being addressed and instruments were placed in the well on 25th May as a first step in the determination of possible interventions. The carrying value
of the Wijk en Aalburg field as at December 31, 2010 is approximately €8 million. If the well interventions are ultimately unsuccessful, then Northern would expect to see significant non cash depletion and impairment charges to the income statement within the results for the year ending 31st December 2011, the exact quantum of which would depend on, inter alia, future field performance and gas prices.

At Geesbrug, a far larger gas field which was placed on-stream in December 2009, the production performance has been analyzed in conjunction with the disappointing results of the Tiendeveen-1 well five kilometers away. An updated static reservoir model has been constructed that forms the current basis of the revised reserves assessment prior to updating the dynamic model.

There has been a change to production decline interpreted as lower permeability reservoir matrix feed, but there will be a delay before an appropriate compressor can be procured given that further production data are required to design the appropriate compressor. The Tiendeveen-1 well results also lead Northern towards a new interpretation of reservoir distribution for the Geesbrug field. Reprocessing of all applicable 3D seismic coverage was deemed essential for placing future development wells and was initiated last year as part of the development plan for the field. The planned 2011 Geesburg-2 new production well will now most likely be delayed into early 2012 to utilize the reprocessed 3D seismic data to determine the most appropriate location of the well. This is designed to be a 3000-4000 foot lateral reservoir intersection with multi-stage fracturing operations which are designed to result in a greater ability for higher production rates than near vertical wells.

Equipment and services for the Ottoland long term oil test have been selected and when all the permits are in place operations can commence. The test is currently expected to be in the third quarter of this year.

The first Papekop oil development well is planned for later this year. Reprocessed 3D seismic data will be available for planning the final well trajectory which will include a horizontal hydraulically fractured intersection of the reservoir.

At Markwells Wood in the UK, plans are well advanced for the production test to commence this summer of the oil discovery made in December 2010. The test design has been completed and the required equipment and services have been selected. The test is planned to commence in late July/early August.

Progress continues to be made in Italy to move towards the drilling of some of the high impact exploration prospects. In the Southern Adriatic plans are advanced to acquire a 2D seismic survey over permits F.R39.NP and F.R40.NP that contain the Giove and Rovesti discoveries and it is intended that in addition two 3D seismic surveys will be acquired over these two oil fields and a number of exploration prospects later this year. Blackwatch Petroleum Services in 2007 reported 2P Reserves of 53.16 million barrels for the two fields and assigned a Post-Tax Net Present Value (NPV@10%) of £610 million at a $70 oil price based on developing the fields independently, each with a new build FPSO. Northern and our new partner Azimuth Limited (15% interest) will be seeking additional
partners to assist with the development of the fields and the drilling of exploration wells. Northern has mapped prospects in the two permits with over one billion barrels of oil equivalence prospective resource, split approximately equally between oil and gas.