Horn Indago Petroleum Report · THE COMPANY • Indago Petroleum (Indago) is a new company that...

INDAGO PETROLEUM RESEARCH & ANALYSIS, OCTOBER 2005

T H E C O M PA N Y• Indago Petroleum (Indago) is a new company that intends to list on AiM in November 2005.• Indago was formed through a management buy-out of the United Arab Emirates (UAE) and Omani assets of Novus

Petroleum (Novus), an oil company previously listed on the ASX. Novus was acquired by PT Medco Energi (Medco),the Indonesian oil company, in a hostile take-over in 2004.

• The acquisition of Indago was financed by Meridian Capital which owns 69% of the company. Crosby Capital and themanagement team respectively own 21% and 10% of the company.

T H E M A N A G E M E N T• The management of Indago have been in place for over 9 years and have built an attractive exploration portfolio using

their strengths in field mapping and integration.• Indago's management have established a reputation in the region as a competent partner through their operatorship

of the offshore Bukha gas and condensate field (Block 8, Oman). In addition, in the same block, they have taken the WestBukha well through appraisal to development phase.

A S S E T P O R T F O L I O• Indago have focused on developing an understanding of the fold-belt fairway of the Northern Arabia Peninsula, in Oman

and the UAE. They have integrated surface geology with improved seismic imaging to generate a suite of attractiveexploration prospects. All reservoir targets have established analogous regional producers.

• Indago has developed a mature prospect inventory with Hagil and Ash Sham in the UAE (Onshore RAK); Jebel Hafit(Block 31), and Adam and Izz (Block 47) in Oman.

• There are also several follow-up leads in each of the blocks to enable Indago to build on any exploration success in thecurrent drillable prospects. Indago also has a number of opportunities in the region which may enable it to grow theportfolio further in the event of exploration success.

W O R K P R O G R A M• Indago is expected to raise up to US$ 120 million (m) at its IPO to be applied to debt repayment, project development,

the drilling of 5 wells, exploration and the finalisation of new projects.• The US$ 60 m West Bukha development well is underway. The US$ 16.7 m Hagil well spudded at the start of October 2005.

Thereafter, Indago expects to spud a US$ 11.4 m well at Adam in May 2006, followed by a US$ 24.8 m well at Jebel Hafitin September/October 2006. A US$ 10.2 m well at Izz will be spudded either before or after drilling starts at Hafit,with a US$ 5.4 m well at Ash Sham scheduled for August 2006.

VA L U AT I O N• With a target reserve base of 1.93 billion (bn) barrel of oil equivalent (boe), with a gross adjusted probability value

of US$ 1.6 bn, Indago has a range of high impact exploration opportunities.• The estimated unrisked recoverable Gas Initially In Place (GIIP) of the Prospect portfolio is 6.2 trillion cubic feet of gas

(Tcf) gas. Using a 1 in 5 probability, and a fixed gas price of US$ 1.20 and US$ 1.40/MMbtu for the Oman and theUAE respectively, the value is approximately US$ 403 m.

• The estimated unrisked Condensate Initially In Place (CIIP) plus LPG volume from the current prospect inventoryis 789 MMboe. 82% of condensate potential is contained with two prospects, Jebel Hafit and Hafit. On a risked basisat a West Texas Intermediate (WTI) oil price equivalent of US$ 30/bbl, the value of this condensate portfoliois approximately US$ 1.2 bn.

• The expected volume from the current lead inventory is 212 Bcf gas and 4.7 MMboe condensate plus LPG. Using a 1 in 20probability at the fixed gas prices noted above and a WTI of US$ 30/bbl, the value of the gas, condensate and LPG Leadportfolio is approximately US$ 7.4 m. This valuation only reflects those leads valued by Petrenel, the technical consultant.In addition, Indago’s management have developed a portfolio of leads to which no value has as yet been attributed

• Adjusting for possible back-in's, a 30% weighting of the calculated value of Jebel Hafit and Hagil, and a deductionof 25% from the adjusted value for various risk factors; within a WTI price range of US$ 30/bbl to US$ 54/bbl, an indicativevaluation for Indago is between US$ 427 m to US$ 701 m.

E X E C U T I V E S U M M A R Y

Indago Petroleum would like to thank NASA for providing the cover image for this Report.

1 INDAGO PETROLEUM

THE COMPANY 2OVERVIEW 2STRATEGY 4NON-EXECUTIVE DIRECTORS 5EXECUTIVE DIRECTORS 7OPERATING STRUCTURE 8CORPORATE GOVERNANCE 10

THE UNITED ARAB EMIRATES AND OMAN 12

REGIONAL ENERGY SUPPLY AND DEMAND 16

ASSET PROFILE 18PRODUCTION 22DEVELOPMENT 24PROSPECTS 26LEADS 32OPPORTUNITY 38

WORK SCOPE & FINANCING 40

RISKS 44

FINANCIAL ANALYSIS 48

VALUATION 54

GLOSSARY 62

APPENDIX 1: OVERVIEW OF THE ENERGY SECTOR 64

RATINGS SYSTEM & CERTIFICATION 69

RESEARCH DISCLOSURES 70

DISCLAIMER 71

C O N T E N T S

T H E C O M PA N Y

2MIRABAUD SECURITIES, M. HORN & CO.

OVERVIEW

Indago Petroleum (Indago) intends to list on the London AiM marketin November 2005.

Indago is a focused oil and gas Exploration and Production (E&P)company with a portfolio of opportunities, which vary in risk and maturity.

Indago was formed through a management buy-out of the United ArabEmirates (UAE) and Sultanate of Oman (Oman) assets of NovusPetroleum (Novus).

Novus was acquired by PT Medco Energi (Medco), the Indonesian oilcompany, in a hostile take-over in 2004.

The buy-out of the assets of Indago was financed by Meridian Capitalwhich on a pre-money basis owns 69% of the company. Silk RoutePetroleum, a company controlled by Crosby Capital, and the managementcurrently own 21% and 10% of the company respectively.

Indago is the 100% owner of subsidiary companies Indago TechnicalServices Ltd, Indago Oman Ltd (IOL) and Indago Al Khaleej Ltd (IAK).These companies hold its interests in a producing gas-condensate field(Bukha), and an approved gas-condensate development (West Bukha),which is expected to come in stream in late 2007. Both of these assets arelocated off the Musandam Peninsula in Omani waters.

In addition, Indago has 5 drillable prospects (Jebel Hafit, Block 31; Hagiland Ash Sham, Ras Al Khaimah; Adam and Izz, Block 47) and plans to drill5 exploration wells prior to 2007.

Indago is an active explorer and in addition to its portfolio of Prospects,it has several Leads in different stages of development.

The company is also actively evaluating a number of new ventureopportunities.

3 INDAGO PETROLEUM

Source: Indago Petroleum

STRATEGY

Indago aims to become a leading producer of natural gas in Oman and theUAE in order to satisfy a significant forecast regional supply/demandimbalance.

This objective will be achieved through:

• Development of existing fields

• Exploration in existing licenses held by the company

• Acquisition of related acreage and existing undeveloped discoveries.

Indago has a significant amount of license acreage in the UAE and Oman,and is strategically well placed with strong political and workingrelationships in the region.

COMPANY STRUCTURE


Silk Route Petroleum Ltd

Indago Petroleum Ltd

Indago OmanBlock 30 Ltd

OmanBlock 30

RAKOnshore

OmanBlock 17

OmanBlock 31

Atlantis HeritagePetroleum LG Heritage

Petroleum

OmanBlock 47

OmanBlock 8

IndagoAl Khaleej Ltd

Indago TechnicalServices Ltd

IndagoOman Ltd

21%

100% 100%

100% 100% 100%40%

10%50% 10%50%

100% 40%

100% 100%

69% 10%

MeridianMiddle East Inv. Ltd Management

BVI

Cayman Islands

Guernsey

Bermuda

Petroleum Concession Incl. Indago Interest

Non�Indago Companies


T H E C O M PA N Y

5 INDAGO PETROLEUM

NON-EXECUTIVE DIRECTORS

The Rt. Hon. Tim Eggar CHAIRMAN, NON-EXECUTIVE

The Rt. Hon. Tim Eggar Chairman, Non-Executive. Mr. Eggar workedat Hambros Bank before spending 8 years with European BankingCompany. In 1979, he was elected to the UK parliament. From 1985,he served in several UK ministerial positions and ultimately was Ministerfor Industry and Energy from 1992 to 1996. Since leaving government,he has served as a director of a number of companies, including Chairmanof MW Kellogg Limited and of Agip UK Limited. He was Chief ExecutiveOfficer of Monument Oil and Gas plc. From 2000 to 2004, Mr. Eggar wasGlobal Head of ABN AMRO's Global Energy Corporate Finance Groupand, most recently, Chairman of UK Client Coverage. Mr. Eggaris currently a Non-Executive Director of Anglo Asian Mining and ExproGroup International. He is President of the Russo-British Chamberof Commerce. He was the Chairman of the Anglo-Azeri Society.

Barry GoldbergDIRECTOR

Mr Goldberg is a principal of Genuity Capital Markets. Mr. Goldberg hasextensive public company advisory experience. Prior to joining GenuityCapital Markets, from 1998 to 2005 Mr. Goldberg was a Managing Directorat BMO Nesbitt Burns where he was the Head of Restructuring. From1996 to 1998, Mr. Goldberg was a partner at the law firm Heenan Blaikie.From 1990 to 1996 he was a partner at the law firm Osler Hoskin andHarcourt. Mr. Goldberg has an undergraduate degree, a Bachelor of CivilLaw, and a Bachelor of Common Law from McGill University.He is a member of the Ontario Bar.

Rod PerryDIRECTOR

Mr Perry is global head of Venture Capital for 3i plc. He is a member of theboard of 3i Group plc and a member of both the Executive Committee andthe Investment Committee. Between 1997 and 2001, Rod was responsiblefor the 3i investment business in Asia Pacific. Rod has a B.Sc. in Physicsand is a member of the Institution of Electrical Engineers.


Paul Alexander MarchandDIRECTOR

Mr. Marchand is General Counsel of Meridian Securities (UK) Limited.Mr. Marchand was formerly a partner of White & Case LLP,an international law firm. Prior to joining White & Case LLP, Mr. Marchandwas a solicitor at Linklaters, an international law firm. Mr. Marchandis a member of the Law Society of England and Wales and holdsa Bachelor of Civil Law degree from the University of Oxford (CorpusChristi College), an LL.B from the University of Stellenbosch anda Bachelor of Commerce and Masters in Taxation Laws from theUniversity of the Witwatersrand.

Dr Robert Charles WilliamsDIRECTOR

Dr. Williams has degrees in geology from the Universities of Manchesterand Cambridge, England. He joined British Petroleum plc in early 1976,where he worked in their international staff. In 1987 he became GeneralManager and a Director of Oil Search Limited. In 1994, Dr. Williamsformed and led the team that created Novus Petroleum Limited, Australia'slargest IPO of an upstream oil and gas company. Dr. Williams was also theNon-Executive Chairman of Nido Petroleum Limited. Dr. Williams becamea Fellow of the Australian Institute of Company Directors and is alsoa Fellow of the Geological Society. He has served on a number of industrycommittees in various countries. He is a member of the Advisory Boardof the Energy and Geoscience Institute, a division of the University of Utahaffiliated with Imperial College, London.

Dr. David Lawson BremnerDIRECTOR

Dr. Bremner joined British Petroleum plc in 1977, where he worked in theirinternational staff in London, Aberdeen, Alaska and San Francisco.He resigned from BP in 1984 to become Exploration Manager of MerlinPetroleum, a small start-up exploration company, based in San Francisco.After the sale of Merlin Petroleum in 1989 and a successful rolein international petroleum consultancy, in 1995 he joined Monument Oil andGas plc, based in London, as Exploration Manager. In 1997, Dr. Bremnerwas appointed Exploration Director for Monument, a role which he held untilthat company was sold in 1999. Since that time Dr Bremner has beenengaged in international petroleum consultancy with a particular emphasison new business development and has been active in explorationconsultancy in the domestic United States. Dr. Bremner holds an honoursdegree and a Ph.D. in geology from the University of Glasgow, Scotland.

T H E C O M PA N Y

7 INDAGO PETROLEUM

EXECUTIVE DIRECTORS

Peter SadlerCHIEF EXECUTIVE OFFICER

Mr. Sadler is a graduate of Oxford University and London Imperial College.He commenced work with Schlumberger in 1978 and after obtaining hisMSc, he joined Unocal as a petroleum engineer. Prior to being appointedas the Head of Engineering in 1996 by Novus (the forerunner of Indago),Mr. Sadler worked with companies such as Texas Eastern, Exxon,Fletcher Challenge, Agip and Shell. In 2000 he was appointed by Novusas Regional Manager Middle East. Mr. Sadler also sat on the ExecutiveCommittee of Novus.

John HurstEXPLORATION DIRECTOR

Mr. Hurst obtained a B.Sc in geology from Hull University and a D. Phil andD.Sc in geology from Oxford University. In 1976 he joined the GreenlandSurvey mapping and exploration teams in Copenhagen. In 1983 he joinedBritish Petroleum in London and was initially involved in regionalexploration projects. He subsequently became Manager of the BasinStudies Group. He resigned from BP in 1992 and joined Total in Parisas Exploration and Production Adviser in carbonate petroleum systemsto the Exploration Manager. In 1996 he joined Novus as a rovingExploration Consultant. He has managed since 1999 Novus' (and nowIndago's) Middle East exploration group.


OPERATING STRUCTURE

Peter Sadler and John Hurst are based in Dubai and are responsible forthe day to day operations of Indago.

Indago employs 6 senior staff and several contractors.

Indago Oman Limited on behalf of the Bukha Joint Venture Partnersoperates the offshore facilities.

A Production Operations Manager, 3 technicians and an office assistant,all based in Ras Al Khaimah, are responsible for the day-to-day activities.

A Petroleum Engineer located in the Muscat office is responsible forreservoir and production monitoring.

General management is provided by Indago's Dubai Office.

T H E C O M PA N Y

9 INDAGO PETROLEUM

INDAGO PETROLEUM ORGANISATIONAL STRUCTURE (SEPT 2005)


Peter SadlerChief Executive Officer

John HurstExploration Director

Miguel SotoChief Financial Officer

(acting)

Shelley WatsonCommercial Manager

Appointed*WB Dev. Project Man.

Jamie ParryRegional Ops Manager

Abduljalil Al FarsiOps Manager Onshore Oman

Paula PedlerSnr Petroleum Engineer

David Moore*Drilling Manager

Steve Hendry*Snr Drilling Engineer

Ben Hennessy*Snr Drilling Supervisor

Morris Ferris*Snr Completions

& Welltest Engineer

Maria FernandezDrilling Sec

Gary Morrison*Materials/Logistics

Supervisor

John BrownOps Geologist

AppointedSnr Geophysicist

Thomas LaglerTechnical Assistant

Lois KapeGeologist

Salim Al SalmiAccounts Administrator

Laith AlbehaceeAccounts Admin & PRO

Azhar AhsanAccounts Administrator

Daniela GarradSnr Geophysicist

Mick McNaneyProduction Manager

Gracia ValladianExecutive Secretary & Office Co-ordinator

Joseph YueOffice Assistant

Ramsey CabunocOps & Maint Tech

Manuel Del RosarioOps & Maint Tech

Hamid Al HajriOps & Maint Tech

Halima Al BalushiAdmin Secretary

Khaled Al HashmiPRO

Jacob PhilipOffice Assistant

Employees: 26*Contractors: 6


CORPORATE GOVERNANCE

BOARD GOVERNANCE

AUDIT COMMITTEE

The Audit Committee will be chaired by Barry Goldberg. The AuditCommittee will be responsible for monitoring the quality of internal controlsand for ensuring that the financial performance of the Company is properlymonitored, controlled and reported on.

REMUNERATION COMMITTEE

The Remuneration Committee will be chaired by Tim Eggar. TheRemuneration will review the performance of the executive Directors andset the scale and structure of their remuneration and the basis of theirservice agreements with due regard to the interests of Shareholders.

NOMINATION COMMITTEE

The Nomination Committee will be chaired by Tim Eggar. The NominationCommittee will be responsible for reviewing the structure, size andcomposition of the Board, preparing a description of the role, capabilitiesrequired for a particular appointment, identifying and nominatingcandidates to fill Board positions, as and when they arise.

T H E C O M PA N Y

11 INDAGO PETROLEUM

HEALTH, SAFETY AND THE ENVIRONMENT

Indago has inherited safety attitudes and operational documentation fromits original Australian parent. Prudent operating practices along withfit-for-purpose, current oil spill contingency plans and environmentalassessments will continue to be implemented in excess of existinggovernment requirements. These procedures will be updated to reflectchanging operational needs and industry practice.

In addition, following Admission, the Company intends to adopt practicesto comply, so far as practicable and appropriate for a company of its size,with the main provisions of the Combined Code.

The Company has adopted a share dealing code, based on the ModelCode for Directors and relevant employees in accordance with the AIMRules and will take proper steps to ensure compliance by the Directorsand those employees.

CONTRACTING AND PROCUREMENT

In Oman there is an oversight committee with the Ministry of Oil and Gas(MOG) which requires a tender exercise for all contract awards overUS$100,000.

Following a pre-qualification phase, separate, sealed technical andcommercial bids are sought and subsequently assessed by thecommittee. An evaluation is made by the operator and submitted forapproval to the MOG.

This process provides good transparency and accountability. Thecommittee has been flexible when confronted with logical justification. A similar internal procedure is carried out in jurisdictions which do not haveprescribed government controls.


UNITED ARAB EMIRATES

POLITICAL STRUCTURE

The UAE is a federation of seven emirates - Abu Dhabi, Dubai, Sharjah,Ajman, Fujairah, Ras Al-Khaimah and Umm Al-Quwain. Political poweris concentrated in Abu Dhabi, which controls the vast majority of the UAE'seconomic and resource wealth. The two largest emirates - Abu Dhabi andDubai - provide over 80% of the UAE's income.

There is a high level of political and economic autonomy within theindividual emirates. Each emirate has its own ruler, controls its own naturalresources and regulates much of its own commercial activity. The rulersof the emirates each serve as members of the Federal Supreme Councilof the UAE incorporating both legislative and executive powers.The Council ratifies federal laws and decrees, and plans general policy.

The Council of Ministers or Cabinet is described in the Constitution as "theexecutive authority" of the federation is headed by the Prime Minister whois chosen by the President in consultation with his colleagues on theSupreme Council. In June 1996, the UAE's Federal National Councilapproved a permanent constitution for the country.

The current head of state, Sheikh Khalifa bin Zayed Al-Nahyan, took officein November 2004, following the death of his father Sheikh Zayed binSultan Al-Nahyan.

T H E U N I T E D A R A B E M I R AT E S A N D O M A N

The United Arab Emirates (UAE)and The Sultanate of Oman(Oman), enjoy a reputation forpeace, prosperity and economicdevelopment. Unlike many ofthe nations in the region,political risk and majoracts of terrorism have beennon-existent for decades.

13 INDAGO PETROLEUM

ECONOMY

The overall performance of the UAE's economy is heavily dependenton oil exports, which account for over 30% of total gross domestic product(GDP). Growth in real GDP was 6.4% in 2004, partially due to higher crudeoil prices. For 2005, real GDP growth is projected to reach 6.5 %. Thenon-oil segment of the UAE's economy also is experiencing strong growth,particularly the petrochemicals and financial services sectors.

The UAE is the 3rd largest economy in the Middle East with GDP of US$85.5 bn in 2004. The UAE's GDP has risen by 55% over the past 5 years,giving a growth rate of 10.9% per annum. The UAE has the highest percapita income after Qatar in the Arab world largely due to its oil and gasreserves. Since the early 1970's, the UAE has transformed itself intoa highly prosperous economy.

The UAE is mid-way through a 20 year economic diversification plan awayfrom primary oil production. Currently, there are several major projectsunderway throughout the Emirates in various sectors including refineryand petrochemicals, tourism, aviation and airports, re-export commerce,and telecommunications.


OMAN

POLITICAL STRUCTURE

Oman has been ruled by Sultan Qaboos bin Said Al Busaidi since 1970,when he deposed his father in a bloodless coup. All power is concentratedin the hands of the Sultan, who also holds the top positions in the finance,defence, and foreign affairs ministries.

Rules governing the succession to the throne were formalized in the 1996Basic Law. There is no Omani legislative assembly, though there are twoconsultative bodies called the Majlis Al-Dawla and the Majlis Al-Shura.Together, the two chambers form the Council of Oman. The MajlisAl-Dawla is appointed, while the Majlis Al-Shura is elected. The lastelection was held in October 2003.

Constitutional reforms in Oman have been part of the ongoing processof modernisation. The Basic Statute of the State, announced in November1996, deals with every aspect of State legislation and human rights.It guarantees equality of all citizens before the law, freedom of religion,freedom of speech, the free press, the right to a fair trial and the rightto form nationally based associations. It lays down the framework forall future legislation and provides for the succession. The Basic Statutealso barred ministers from holding interests in companies doing businesswith the government.

T H E U N I T E D A R A B E M I R AT E S A N D O M A N

15 INDAGO PETROLEUM

ECONOMY

Oman's macroeconomic environment currently is strong, despite recentdeclines in oil production. Real GDP growth was 3.3% in 2004 andis projected to rise to 3.5% in 2005. Inflation was only 0.8% for 2004.

Oman is heavily dependent on oil revenues, which account for around75% of the country's export earnings and almost 40% of its GDP.

Due to the maturation of its oil fields and the volatility of oil prices, theOmani government has made diversifying the country's economy a toppolicy priority. In the 1980s, this effort hinged on developing a domesticmanufacturing base, but more recent initiatives have focused on theexploitation of Oman's other natural resources, particularly its naturalgas reserves.

Oman has large mineral and metal deposits, including silica, dolomite,copper and gold. In September 2003, the government announced thatit was reviving a five-year-old plan to build a US$ 2.5 bn aluminiumsmelter, which is to begin operation in 2007.

Oman's efforts to diversify the economy also include "Omanization",a program designed to increase the percentage of Omani citizens workingin the private sector. At present, Omani nationals constitute only 10%of private sector employment.

The government also has continued to attempt to attract foreigninvestment, particularly in light industry, tourism, and electric powergeneration. Foreign investment incentives include a 5-year tax holiday forcompanies in certain industries, an income tax reduction for publicly heldcompanies with at least 51% Omani ownership, and soft loans to financenew and existing projects. The process of privatizing some state-ownedindustries is to be accelerated under a decree issues in July 2004, whichwill allow foreign ownership up to 100% in power generation and water.

Oman became a member of the World Trade Organization (WTO)in October 2000. Movement continues towards an eventual customs unionamongst the Gulf Co-operation Council (GCC) states.


The key factors governing the growth of natural gas demand in the region are:

• Increased use of natural gas for re-injection to boost decliningoilfield production.

• Numerous gas-export related industries such as LNG schemes andpetrochemical plants are now competing with domestic natural gasrequirements. In particular growth in LNG demand on the Indiansubcontinent is expected to underpin new gas export schemes.

• Substitution of natural gas for existing diesel-fired operations allowsa greater proportion of refined products to be freed up for export.

• Gas-intensive industries such as cement manufacture, aluminiumsmelting and ceramic manufacturing have grown to take advantageof the confluence of cheap energy, a benign tax environment, andan abundance of cheap labour.

• Electricity demand has grown as economies have grown leadingto corresponding growth in natural gas fired generation. The harshclimate requires extensive use of desalination and air conditioningwhich are energy hungry end-use applications.

As such, despite the regions hydrocarbon resources there areopportunities to supply gas into its markets.

There are shortfalls of natural gas supply evident today, and thisis forecast to grow.

R E G I O N A L E N E R G Y S U P P LY A N D D E M A N D

17 INDAGO PETROLEUM

MEDIUM TERM OPPORTUNITIES

There is an opportunity to supply gas to the Federal Electricity and WaterAuthority (FEWA) power stations in the Northern Emirates which areburning significant volumes of liquid fuels due to a gas shortfall.

Sharjah Electricity and Water Authority (SEWA) is expected to be shortof gas by summer 2005, unless a new source materialises. This is dueto declining gas production from the Sajaa field, which has also causeda reduction in the amount of Sharjah gas supplies to the growing Dubaimarket. SEWA is currently buying gas from Iran through a new UAE listedcompany, Dana Gas.

Oman has developed its gas-based industry over the past few years and,although new gas fields and infrastructure are being developed, Qatari gasimports (via the Dolphin project) are required to make-up the shortfall thatwould otherwise occur within 2 to 4 years.

LONGER TERM OPPORTUNITIES

In addition to these short to medium term opportunities, thereis a requirement for a project such as Dolphin to supply large volumesof gas to the UAE and Oman by 2007.

Although the Dolphin Gas project has the potential to flood the marketin the northern emirates and Oman, actual gas deliveries are still manyyears away and the cost of delivered gas will have to compete withcheaper gas from local fields.

CONCLUSION

Oman will face difficulty in filling a 9 to 16 Tcf shortfall without importingrelatively expensive Qatari gas via the UAE.

Within the UAE gas demand is likely to grow further beyond the forecast8.2 Tcf deficit as soon as industrial users have security of supply. Theestimated available market over the next 20 years is approximately 15 Tcf.


NORTHERN ARABIAN GAS-CONDENSATE PLAY

Indago has created a portfolio of drilling opportunities distributed alonga trend which they call the "North Arabian Gas Condensate Play" (NAGP).Indago believes that its NAGP prospects have the scale to contain severalTcf of gas.

The Oman mountain range stretches from the Musandam Peninsulain a southwards arc towards Muscat in Oman. These mountains havebeen created through the collision of the Arabian plate with an Island Arccomplex, and this has created a foreland thrust belt.

Typically, mountain regions such as these, and in particular the buriedfrontal deformation zone, are natural focal points for hydrocarbon migration.

The Omani mountains are to some extent an extension of the IranianZagros Mountains. They formed at the same time and have many of thesame geological elements which are so productive in Iran.

The western mountain foreland area has few oil and gas fields as it hasbeen relatively under-explored.

In the north there are a number of gas-condensate fields such as Bukha,West Bukha-Hengam offshore Oman/Iran, and the Saja'a, Moveyiid, Khaif,Margham and Khubai fields in onshore U.A.E. At the south of the mountainarc there are other gas-condensate discoveries such as Hafar, Al Sahwa,Nadir and Hamrat Duru south-west of Muscat.

Although separated by hundreds of km these fields are similar in termsof the geological elements that make them work. Indago believes that theyare part of a continuous geological system that stretches along themountain front. If the petroleum systems throughout the entire lengthof the fold belt are the same, then there is likely to be more gas awaitingdiscovery in the under explored area between the proven fields in thenorth and the south.

A S S E T P R O F I L E

19 INDAGO PETROLEUM

This geological insight is nothing new and many of the major oilcompanies that explored the Middle East recognised that this wasa potentially prolific gas play. But there was no economic incentiveto explore for gas at that time and the acreage lay dormant. Recently theeconomic incentives for gas exploration have changed. Many of the Gulfcountries now consume large quantities of natural gas and are preparedto pay for the security of additional long-term supplies.



OVERVIEW

There are 4 concessions in Oman and 1 in the UAE in which Indago holdsworking interests.

Indago Oman Limited (IOL) holds a 40% working interest andoperatorship in Oman Block 8 which contains the Bukha and West Bukhafields. Other partners in this block include LG (50%) and Heritage (10%).LG is a large Korean company and Heritage is a Canadian listed oil andgas company.

IOL holds a 40% working interest and operatorship in Oman Block17. Other partners in this block include Atlantis (50%) and Heritage (10%).Atlantis was originally formed as an E&P subsidiary of the seismiccompany PGS, but is now owned by the Chinese company Sinochem.

IOL and Indago Al Khaleej Limited (IAKL) hold a 100% working interestand operatorship in all other blocks.

LEGAL TITLE

There are a number of agreements in place between the relevantgovernment authorities and the Indago group of companies.

These include:

• The Exploration and Production Sharing Agreements (EPSA's) whichdetail the fiscal terms and work requirements for the Omani blocks;

• The Joint Operating Agreements (JOAs) which detail the conduct of jointventure operations for blocks where there is more than one partner.

• A Heads of Agreement for gas sales from the West Bukha field into thenorthern emirate of Ras Al Khaimah.


21 INDAGO PETROLEUM

EXPLORATION PORTFOLIO PROFILE

An overview of the Indago portfolio, which sets out the Expected UltimateRecoverable Reserves as agreed by Petronel, the independent technicalconsultant, and which form the basis of our valuation of the company,is set out below.

INDAGO PETROLEUM LTD COMPETENT PERSON'S REPORTINDEPENDENT VOLUMETRIC ESTIMATE OF ASSETS

Risked Expected Remaining Hydrocarbon Recovery Economics (100%) Economics (IPL share)Unrisked Unrisked Risked Unrisked RiskedRecovery 100% 100% IPL Share IPL Share NPV EMV NPV EMV

Mid Mid POS POS Sales Gas Cond+LPG Sales Gas Cond+LPG NPV (10%) EMV (10%) NPV (10%) EMV (10%)Block Asset (bcf) (mmb) Prospect WetGas (bcf) (mmb) (bcf) (mmb) (US$m) (US$m) (US$m) (US$m)

Block 8 Bukha 52.4 3.4 1.00 1.00 0.0 2.0 0.0 0.8 10.5 9.7 4.2 3.9Block 8 West Bukha (Oman) 226.5 27.7 0.70 1.00 65.7 19.0 26.3 2.8 103.0 68.4 41.2 27.4RAK Hagil 1,586.9 233.7 0.20 0.65 330.0 32.5 330.0 32.5 1,044.2 128.1 1,044.2 128.1RAK Hagil Lias/Trias 780.1 117.0 0.12 0.65 95.5 9.5 95.5 9.5 557.6 38.2 557.6 38.2RAK Ash Sham (part) 757.7 109.4 0.09 0.50 34.1 4.9 34.1 4.9 325.7 4.1 325.7 4.1RAK Digdaga 0 0 0.00 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Block 17 Ash Sham/Ghumdah 480.8 69.4 0.09 0.50 8.9 1.3 3.5 0.5 127.2 5.1 50.9 2.0Block 31 Jebel Hafit (Oman) 2,058.9 310.3 0.29 0.75 283.6 28.4 283.6 28.4 1,235.4 261.5 1,235.4 261.5Block 31 Qumaira 0 0 0.00 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Block 31 Jebel Wa'Bah 0 0 0.00 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Block 47 Izz 378.9 54.3 0.24 0.20 9.5 1.4 9.5 1.4 198.3 3.5 198.3 3.5Block 47 Izz Deep 83.4 0.9 0.15 0.20 6.9 0.3 6.9 0.3 77.87 0.5 77.9 0.5Block 47 Adam 439.9 68.0 0.19 0.70 31.1 4.6 29.5 4.3 238.5 22.1 226.6 21.0Block 47 Sadood 67.5 10.4 0.11 0.20 0.0 0.0 0.0 0.0 26.8 -6.0 26.8 -6.9Block 47 Kabshat 54.6 7.5 0.57 0.10 19.4 0.4 19.4 0.4 33.3 0.1 33.3 0.1Block 47 Dham 0 0 0.00 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total 6,968 1012 884.6 92.3 838.3 85.9 3,951.5 541.4 3,795.2 490.3

Source: Technical Consultant


PRODUCTION

BUKHA


Indago is the operator of Bukha, Oman's only offshore producing field.Bukha has produced since 1994 but is now in decline.

As estimated by Petrenel, the field contains an initial GIIP of 326 Bcf.Petrenel estimate that proven plus probable reserves of gas remainat 48.19 Bcf, 4.60 MMbbl condensate and 1.0 MMbbl of LPG.

The Bukha field fluids are contained in two zones known as the Thamamaand the Mauddud. Both reservoirs are fractured carbonates whichaugment permeability and provide good flow rates from otherwise lowporosity-permeability rocks. The reservoir has little aquifer support anddepletes as a normal retrograde condensate field, with condensatedropping out in the reservoir as pressure declines and hence decreasingthe condensate-gas ratio with time.


23 INDAGO PETROLEUM

This field derives its revenue from the sale of condensate and LPG.Bukha 1, a sub-sea completion, is connected back to the platformby a 1,186 metre, 6-inch flexible flow line with separate service and controlumbilical. Bukha 2 is a surface completion.

Produced fluids are exported from the platform by natural drive,via a 34km, 16 inch diameter pipeline to the Ras Al Khaimah GasCommission (RAKGAS) processing facility, located at Khor Khwair in RasAI Khaimah, UAE. No processing of produced fluids is carried out on theplatform as this is all carried out at the RAKGAS plant.

The field is mature and on a predicted decline, nevertheless it is expectedto continue producing for 5 years or more. The projected economic limitof the field continues to be extended with the prevailing high oil priceenvironment. Current end of field life is expected in 2011.

Production, net to Indago during 2004 averaged 870 barrelsof condensate and LPG per day and 13.9 MMscfd of gas. It is fiscallylinked to West Bukha (in the same EPSA) and hence 90% of the liquidsrevenue after operating cost is available to recover costs incurred throughthe development of West Bukha.

Bukha is not material in the context of the valuation of Indago.Nevertheless, as an asset operated by Indago it has established thecredibility of the company in the region.


DEVELOPMENT

WEST BUKHA


West Bukha is the Omani portion of the West Bukha-Hengam field thatstraddles the Oman/Iran border in the Straits of Hormuz. The fieldis located within Oman Block 8 which also contains the existing Bukhafield 22 km to the south-east.

The Bukha Joint Venture (BJV) has been given permission by thegovernment of Oman to develop the field, initially through a single well andwellhead jacket tied in through Bukha.

The wellhead platform will have 6 available well slots to ensure that furtherupside could be accessed if suitable drilling locations can be identified.


25 INDAGO PETROLEUM

As estimated by Petrenel, West Bukha contains an estimated initialGIIP of 525 Bcf and CIIP of 54 MMbbl.

West Bukha development is scheduled to commence as soon as possiblewith drilling of phase I commencing in late 2005. First gas is scheduled forlate 2007 and phase II continuing in 2008.

Development costs are estimated at around US$ 62 m for a single welldevelopment and US$ 88 m for 2 wells. A successful, 2 well development,if the simulation profile is achieved, would using NPV10 have a valueof approximately US$120 m, equivalent to US$48 m net to Indagoat a WTI price of US$ 30/bbl.

It is proposed that the development costs will be two-thirds funded fromproject finance, though a more conservative estimate would be 50%project finance. The development plan for phase 1 consists of:

• Drilling and testing of 1 development well, West Bukha-2 (US$20.4 m)

• Installation of wellhead platform and pipeline tied to Bukha (US$34.8 m)

• Tie back and completion of West Bukha-2 (US$6.2 m)

The main producing formation, the Mauddud - Mishrif is expected to bea low porosity fractured limestone and hence the main risk is reservoireffectiveness. Break even reserves are as estimated by management,25 Bcf at an assumed WTI oil price of US$24/bbl for the initialdevelopment of phase I.

Based on the operating expectations of management West Bukhais considered to be a robust project.


PROSPECTS

BLOCK 31

JEBEL HAFIT


At Jebel Hafit, Indago is targeting estimated mean reserves of 2.7 Tcfof gas, and 344 MMboe of condensate and LPG. This is a significant prospect.

The Jebel Hafit prospect, named after the prominent mountain thatjuts out of the desert above this prospect, straddles the border betweenOman and Abu Dhabi. The geological interpretation shows that themountain is actually the surface expression of a deeper structure.It is a compressional anticline beneath a prominent surface mountain.

The difficulty in readying this prospect for drilling arose from the former lackof interest in gas and the necessity of organising co-operation between theUAE and Omani governments to assemble the technical data, includingconducting seismic surveys, across an international border.


27 INDAGO PETROLEUM

Nevertheless, in 2003 Indago acquired state-of-the-art seismic data whichconfirmed the size and integrity of the subsurface structure. Jebel Hafitappears to be geologically analogous to the producing Margham andSajaa field to the north in UAE.

The imaging from the reprocessed seismic data is fair. The main reservoirtarget is in the Cretaceous (Natih/Shuaiba) carbonates at circa 5,000mdepth. A gas condensate seep has been discovered by Indago fieldgeologists on the mountain. Indago is targeting two working reservoirs,Mauddud and Thamama.

Indago expects to be able to spud a US$ 24.8 well, including testing,at Jebel Hafit in September/October 2006.


Structural Cross Section a-a’; North Jabal Hafit and the adjacent Oman (UAE) Foreland Basin by Daniel Schelling

Scale = 1:50,000(No Vertical Exaggeration)

Kn

Knu

Ksk

Kl

Js

Pk

Ev

Kf

Haw

Thrust Fault

Normal Fault

Seismic reflectors

25 Apparent dip in line of section

60 Apparent dip of overturned beds in line of section

L E G E N D

S U B - T H R U S T S T R AT I G R A P H I C S E C T I O N

Undifferentiated Sumeini Group and Hawasina Complex (Permian-Cretaceous)

Mayhah Fm., slope facies limestones (Middle-Upper Jurassic)

Jabal Wasa Fm. conglomerates ? (Upper Triassic)

Fiqa Fm., including "Juweiza" Member (Upper Cretaceous)

Natih Fm. (Wasia Group) (Middle Cretaceous)

Nahr Umr Fm. (Wasia Group) (Middle Cretaceous)

Shuaiba and Kharaib Fms. (Kahmah Group) (Lower Cretaceous)

Lekhwair Fm. (Kahmah Group) (Lower Cretaceous/Upper Jurassic )

Khsr Habshan Fm., Salil Fm., and Rayda Chert (Lower Cretaceous/Upper Jurassic )

Sahtan Group (Jurassic)

Mahil Fm. (Triassic)

Khuff Fm. and Haushi group, undifferentiated (Permo-Carboniferous)

Evaporites (Infracambrain-Cambrian)

Undifferentiated Precambrian, including basement

Haima Group (Paleozoic)

TRm

H A W A S I N A / S U M E I N I A C C R E T I O N A R Y W E D G E

Qal

Tf

Ts

Taj

Tdu

Tdm

Tdl

Tr

Tur

Ks

P O S T - E M P L A C E M E N T S E Q U E N C E S

Undifferentiated Cretaceous, Sumeini Group "slope" sedimentsKu

Jmh

Twc

PCu

Pzh

aS 68…

30

30

20

80 80

Sumeini Accretionary Wedge

Frontal SumeiniAccretionary Wedge

SumeiniFrontal Thrust

Seismicno-data zone

J.

Uppe

r L

ower

North

SEISMIC LINE IQS-54

Zone of Ductile

Deformation

OMAN MOUNTAINS

Note: Mesozoic stratigraphy changes across interpreted Triassic extensional fault and Jurassic-Cretaceous

structural hinge-line

Carbonate PlatformMargin?

Carbonate PlatformMargin?

a’N 68…

Js

Twc

KnKnuKsk

Kl

Js

Pk

Khsr

TRm

PCu

KnKnuKsk

Kl

Js

Pk

Khsr

TRm

KnKnuKsk

Ksk

Kl

Kl

Js

Pk

Khsr

Khsr

TRm

TRm

Ev?

Ev?Jmh

SumSum

Ku

Pk

Pzh

PCu

PCu Ev?

Ev?

Kf

Kf

Kf

Kf

Kf

Kf

TsnTaj

Tf

TduTdm

TdlTr

KsTur

TsnTaj

Taj

TduTdmTdl

TdlTdu

Tr

KsTur

Tdu

TdmTdl

TrTur

Kf

Qal Qal

Tf

Qal

Pzh

Pzh

Pzh

Ks

Structural Cross-Section a-a’;North Jabal Hafit

by

Daniel SchellingScale = 1:50,000

Structural Geology International, LLC576 E South TempleSalt Lake City, Utah 84102(801) 322-1685

S t r u c t u r a l G e o l o g y o f E x p l o r a t i o n B l o c k 3 1 ;

C e n t r a l O m a n T h r u s t B e l t

Enclosure # 5O c t o b e r , 2 0 0 3


RAS AL KHAIMAH

HAGIL


Ras Al Khaimah (RAK) is the northern most Emirate of the United ArabEmirates. Currently the Emirate has limited oil and gas fields over which it canlay claim, and is dependent upon its neighbours for both gas and oil. However,Indago has a very promising prospect in Ras Al Khaimah called Hagil.

The Hagil prospect contains 6 target reservoir horizons in two closureson separate thrust sheets. In the hanging wall of the Rahaba Thrust the Lias(Neyriz), Milaha, Upper Bih and Lower Bih (Khuff) are prospective, whereasin the hanging wall of the Tibat Thrust only the Upper Bih and Lower Bih areexpected to be present. A well location has been chosen such that it willintersect all of these horizons in a reasonably crestal position.

At Hagil, according to Petrenel, Indago is targeting estimated meanreserves of 2 Tcf of gas, and 294 MMboe of condensate and LPG. Thisis also a significant prospect.

Seismic was acquired over Hagil in 2003 and this confirmed the presenceof a significant structure. The geological interpretation suggests that Hagilis a faulted dip closed structure at Permo-Trias level, which is beneath themain thrust front. The Trap imaging has been much improved by recentspecialist reprocessing of the seismic. The main reservoir target is Khuffcarbonates which will be encountered first at 2,700 m and again at 4,200 m.

The US$ 16.7 m, including testing, Hagil well is expected to spud at the startof October 2005.


29 INDAGO PETROLEUM

ASH SHAM


Ash Sham is located 4 km north-east of the Hagil prospect. It is a dip closedanticline above a thrust fault. The anticline is exposed at surface and2 seismic lines located over the crest confirm its subsurface expression.

The well will target lower Permian clastic reservoirs at 2 km. Althoughthese reservoirs have not been tested locally they are importanthydrocarbon bearing reservoirs in offshore Abu Dhabi and onshore Oman.

The younger reservoirs in the exposed surface anticline were oncegas condensate bearing. Due to uplift and exposure the hydrocarbonshave dissipated.

At Ash Sham, Indago is targeting an estimated gas recovery of 655 Bcf, and80 MMbbl condensate. Indago expects to start drilling the US$ 5.4 m,including testing, Ash Sham well in August 2006 and will use the same drillteam as used at Izz.


BLOCK 47

ADAM & IZZ



31 INDAGO PETROLEUM

ADAM

Adam is 40 km from the PDO Cambrian discovery at Kauther-1 whichflowed at 49 MMscfd/4,000 bpd.

This prospect is a Cambrian closure beneath small Cretaceous gas pool.The reservoir target is Cambrian Amin sandstone formation at circa4,200 m depth.

Indago expects to spud a US$ 11.4 m well, including testing, at Adamin May 2006.

IZZ

Further to the south in Block 47 are a number of prospects where2D seismic was acquired in 2003.

One of these is the Izz prospect which has a more subtle surfaceexpression which is best seen on satellite imagery. The acquisitionof 2D seismic has confirmed the presence of a large buried structure.

Izz is a Cretaceous closure over a salt pillow updip from the Khatmahgas discovery.

The reservoir target is Cretaceous Natih/Sabsab carbonates at circa2,500m depth.

There are secondary targets in the Jurassic Hafina and Permian Khuff carbonates.

Indago expects to spud a US$ 10.2 m well, including testing, at Izz eitherbefore or after drilling starts at Hafit.



LEADS

Indago has an inventory of Leads some of which are nearly advancedto Prospect status; others are still in the early phase of definition. TheseLeads are briefly described below.

RAK

UNRISKED RECOVERABLE

DIGDAGA

This Lead is a Hagil analogue. It is of comparable size and focused on thesame reservoirs. There is a weak methane seep on top of it. It is located30 km from Sajaa, the largest gas condensate field in the region. Thereis seismic covering the west side. This lead has been worked up to thestage where seismic now needs to be shot on the eastern limb to completethe definition of the Lead.

As the seismic over the this lead is not complete, it has not been includedin the valuation.

Depth Gas (bcf) Cond (mmb)

Digdaga 2,500 565* 19*

Source: M. Horn & Co.


* Management's preliminary estimates.

33 INDAGO PETROLEUM



BLOCK 31


QUMAIRA

This Lead is 30 km east-south-east of Jebel Hafit. It is cored by Cambriansalt which has associated bitumen and condensate bearing rocks. Indagohas seismic on this Lead, which is currently being processed. Surfacegeology indicates a large closure. Seismic processing has provenchallenging because of image problems derived from the signal/noiseratio. Results, however, are due in the next 3 months. If the seismic doesnot clearly define the crest of the structure, then alternative methodsof definition will be required.

It has not been included in the valuation.

JEBEL WABAH

This Lead is a very large surface anticline cored by an undoubted deeperstructure. There is currently no seismic for this Lead, though the seismicscouting is complete. A decision now needs to be made as to whetherto shoot seismic. The decision to shoot seismic at Jebel WaBah will bedriven by the experience at Qumaira. If the problem with the signal/noiseratio can not be satisfactory resolved, then the expense of seismic will notbe justified and other techniques of definition will be considered.

As there is no seismic over this Lead, it has not been included in the valuation.


Qumaira 2,000 716* 37*

Jebel WaBah 2,500 835* 44*

Yanqul 2,500 871* 45*




35 INDAGO PETROLEUM

YANQUL

This Lead is located north-east of WaBah. There is structural reliefat a depth of circa 2km. What is required is a determination of the extentof the closure.




BLOCK 47


SADOOD

This Lead is located 10km north-east of the Hamrat Duru gas field. Thesurface geology indicates that there is a sub-surface structure, and thisis supported by the reconnaissance seismic. Several new seismic linesare now required to map the closure. This is expected to be a dry gas lead.

KABSHAT

Indago believes that Kabshat is a satellite to the Hamrat Duru gas field.It is covered by seismic. It could be drilled now and therefore technicallyis a prospect, but Indago wants to shoot one seismic line to determine theposition of any saddle between it and Hamrat Duru. As such, it has beenvalued as a Lead.

DHAM

The surface geology indicates the presence of a large sub-surfacestructure. Offset seismic 20 km to the south indicates that this is goodsub-surface imaging terrain. The seismic line scouting has finished, anda decision to shoot seismic is pending. The signal to noise issueis mitigated somewhat by benign surface conditions.



Sadood 2,200 395* 0*

Kabshat 900 50* 0*

Dham 2,500 575* 0*

Izz Deep 3,900 260* 0*




37 INDAGO PETROLEUM

IZZ DEEP

This Lead is covered by seismic. The seismic is currently beingreprocessed for a better image at deeper horizons. It is a Khuff play, oneof the main gas bearing reservoirs in the Middle East. Two nearby wellshave gas and bitumen in the Khuff. The Yibal Khuff field is some 40 kmto the south-west.



OPPORTUNITY

COMMERCIAL ACTIVITIES AND MARKETING

Indago, in parallel with its exploration and development activity,will undertake several commercial initiatives:

• Negotiation of a Gas Sales Agreement (GSA) for West Bukha gas withRAKGAS.

• Negotiation of a cost sharing Memorandum of Understanding for JebelHafit with the Abu Dhabi National Oil Company (ADNOC).


39 INDAGO PETROLEUM

NEW VENTURE OPPORTUNITIES

Indago is also currently pursuing several possible new ventureopportunities within its area of focus.

The Board has agreed to date expenditure of US$ 2.37 m. However, if anyof the new projects identified below come to fruition, further expenditureproposals will need to be put to the Board and they will need to beappraised in the light of available funds.

There are four possible new ventures which have been identified and include:

• Acquisition of a block contiguous with Indago's existing acreage.If Indago were to acquire this asset, it would expect to spend US$ 5 min the next 2 years on its development. This spend will cover signaturebonus, seismic reprocessing and ancillary studies. At this stage, fromwhat is known of this asset, a 75% probability of a drillable structureis predicted.

• Acquisition of a 2nd contiguous block* from a competitor. This blockhas proven reserves. The cost of acquisition and the drilling of one wellis estimated to cost up to US$ 4.5 m. The block has sunk costsof US$ 34 m which can be recovered when development andproduction from a field commences.

• In joint venture with the Ras Al Khaimah government, Indago intendsto spend approximately US$ 750,000 to reprocess seismic andto produce a development plan for a discovered field that already has3 wells drilled in it. A well on structure has already tested for oil and gascondensate. Indago expects to be a 40% joint venture partner if anydevelopment subsequently were to take place. The fiscal termsas outlined are attractive.

• Evaluation of a "farm-in". This will cost US$ 100,000. The budgeted"farm-in" evaluation is one of several evaluation opportunities.

* Indago is in the process of concludingan agreement with Anadarko for thepurchase of their interests in Block 30,which lies immediately to the south-westof Block 47. This block has not beenassigned any value. The block containsfour comparatively small gasdiscoveries in Cretaceous carbonates.Anadarko has stated that thediscoveries have potential to holdaround 300 Bcf of sales gas reservesin total, though this is probablyan over-optimistic estimate. Thereis some uncertainty as to whether thediscoveries might be commercialas they stand currently. Indago mayseek to commercialise this modest gasresource through integration withpotential future gas discoveries in thearea. Evaluation of this opportunitywill require a detailed re-evaluationof the discoveries.


WORK SCOPE

Key objectives of the Budgeted Work Programme until the end of 2007 include:

• Phase 1 development of the West Bukha field.

This is currently underway. The cost of drilling the well is circa US$ 20 mwith further development costs of US$ 40 m, giving a total costof approximately US$ 60 m. Indago's share is 40% of these costs. Indagobelieves that it can project finance 50% of its share of the costs, givinga cash requirement of US$ 12.0 m.

• Drilling 5 wells in the Northern Arabian Gas-condensate Play.

HAGIL

This well is due to spud at the start of October 2005. Drilling will be for82 days plus 1 month testing. Drilling costs are US$ 11.8 m, and testingis expected to cost US$ 4.9 m, giving a total cost for the wellof US$ 16.7 m. Hagil is being drilled first is due to contractualcommitments and the prospect location being located only 2.5 km from theRAKGAS plant. In the event of success, Hagil could be brought on-streamthrough the currently underutilised RAKGAS facilities in as little as a year.It is conservatively estimated that first gas could be achieved in 2007.

ADAM

Indago aims to spud Adam in May 2006. Drilling and testing will take4 months. Drilling costs are US$ 8.4 m, and testing is expected to costUS$ 3 m, giving a total cost for the well of US$ 11.4 m.

JEBEL HAFIT

Indago aims to spud Jebel Hafit in September/October 2006. Thisis a deep well and the intention is to use the rig used at Adam. Drilling andtesting will take 6 months. Drilling costs are US$ 17.2 m, and testingis expected to cost US$ 7.6 m, giving a total cost for the well of US$ 24.8 m.

W O R K S C O P E & F I N A N C I N G

41 INDAGO PETROLEUM

IZZ

Indago may start Izz in April 2006 or in the period between the spuddingof Adam and Jebel Hafit. Drilling will take 30 days and testing will take5 days. Drilling costs are US$ 6 m, and testing is expected to costUS$ 4.2 m, giving a total cost for the well of US$ 10.2 m.

ASH SHAM

Indago expects to start drilling Ash Sham in August 2006 and will use thesame rig as used at Izz. Drilling will take 30 days and testing will take5 days. Drilling costs are US$ 3.5 m, and testing is expected to costUS$ 1.9 m, giving a total cost for the well of US$ 5.4 m.

The gross budgeted value of the Exploration drill programme is thereforeUS$ 69.1 m including roll-up testing.

In addition, an appraisal well for Hagil is expected to be drilledat an estimated cost of US$ 16.9 m.

If this appraisal well is taken into account the total prospect drill budgetis US$ 86 m.

• Shoot seismic over leads so as to turn them into mature prospectsready to drill, by late 2006, early 2007.

The total budgeted cost of this programme is US$ 5.5 m.

• New ventures: secure additional prospective acreage in the UnitedArab Emirates and Oman.

As discussed in the previous section, the objective is to acquire acreagewhich form part of the same play fairway. Indago will also target existingdiscoveries of a marginal nature that might be commercialised throughapplied technology or synergies with its existing portfolio.

The total budgeted cost of this programme is US$ 10.3 m.


FINANCING

WORK SCOPE BUDGET

The gross value of the work programme as currently budgetedis approximately US$ 125 m. This will be reduced by US$ 23 m of cashderived from the Burkha assets, giving a net capital required of approximatelyUS$ 102 m at the time of the IPO for the budgeted Work Scope.

Indago will also require financing for general corporate purposes, includingthe evaluation of other opportunities, which has been provisionally estimatedat US$ 2.4 m, giving an estimated financing need of approximately US$ 105 m.

Meridian provided a bridging facility to cover inter-company debt owedto Medco at the time of the acquisition. This facility will need to be repaidat the time of the IPO. There is also a contingent loan facility providedby Meridian, which has been used to fund exploration expenditure andgeneral corporate purposes since the acquisition, which will also needto be repaid. The total amount to be repaid is US$ 34 m.

As such, the total amount of money that Indago may needis approximately US$ 139 m.

PROBABILITY ADJUSTED BUDGET

The Work Scope Budget is one that assumes that all drilled prospects aresuccessful, and that all exploration work results in a decision to proceedto the next phase. It also assumes that all new venture negotiation,are successfully concluded.

This result is unlikely.

Therefore, the Work Scope Budget has been adjusted to reflect a "mostlikely" cash requirement in terms of drilling. It has postponed the decisionon the Hagil appraisal well until a more informed decision can be taken.A similar approach has been taken to the new venture opportunities,where the budget reflects that spend which has current Board approval.

As such, the Probability Adjusted Budget shows a capital requirementof US$ 87.45 m.

As there is a reasonable probability that Indago may need additionalcapital to complete its Work Scope, Meridian has agreed to providea 3 year "back-up" loan facility of US$20 m, at a 10% interest rate, witha 1% commitment fee on the undrawn amount.

W O R K S C O P E & F I N A N C I N G

43 INDAGO PETROLEUM

Work Scope ProbabilityProject Budget Adjusted Budget

West Bukha - Phase 1 US$ 23.53 m* US$11.73 m**

Exploration US$ 69.1 m US$54.76 m†

Hagil US$ 16.7 m

Adam US$ 11.4 m

Jebel Hafit US$ 24.8 m

Izz US$ 10.2 m

Asham US$ 5.4 m

Hagil appraisal well US$ 16.9 m††

Leads - seismic shoots US$ 5.5 m US$5.0 m‡

New Ventures US$ 10.3 m US$2.37 m‡‡

Gross Budget US$ 125.33 m US$ 73.86 m

- Bukha revenue US$ 22.92 m. US$ 22.92 m•

Net Budget US$ 102.41m US$ 50.94 m

+ General Corporate US$ 2.41 m US$2.41 m

+ Debt Repayment US$ 34.10 m US$ 34.10 m

Capital Required: US$ 138.92 m. US$ 87.45 m


* Not assuming any financing.Net, after contribution first half 2005.

** Assuming 50% financing.

† Not all the wells will be successful.As such, not all will be tested.The budget has been adjusted on aprobability basis.

†† The decision to drill an appraisal wellin Hagil is still dependant on theoutcome of further appraisal work. If adecision is made to proceed itsfinancing will be covered by theMeridian back-up loan facility.

‡ As approved by the Board.

‡‡ As approved by the Board.

• Revenue is based on the forwardcurve. It is US$ 11.15 at a flat WTIUS$ 30/bbl.


The risk factors listed below are some important risks, however the listis not exhaustive, and investors must assure themselves that taking theserisk factors into account, that Indago is an appropriate investmentconsidering their specific requirements.

POLITICAL RISK

The countries of Oman and the UAE are considered to be the most stablein the region. Nevertheless, there are the political risks associated withany developing economy. In addition, there are well known regionalpolitical risks.

OIL & GAS INDUSTRY

The Oil & Gas Industry is subject to operating hazards, economicchanges, industry competition, and operating cost variations. Indago'sactivities are speculative by their nature and involve a high degree of risk.The Oil and Gas business is subject to a number of factors beyondIndago's control. An adverse change in any of these factors could resultin the Indago not meeting its business objectives.

REGULATION

Indago may become subject to burdensome Governmental regulation andpermit requirements. Exploration, development and the extraction of oiland gas are subject to extensive laws, regulations and permitting.No assurances can be given that any licenses, permits or approvals thatmay be required will be given or that existing ones will not be revoked.

RESERVE QUANTITIES

Success of the company will depend on the discovery of reservesin commercially viable quantities. Substantial expenditures are requiredto establish reserves through drilling and analysis. No assurance canbe given that the contained minerals will be discovered in sufficientquantities to justify commercial operations or that the funds required fordevelopment can be obtained on a timely basis.

R I S K S

45 INDAGO PETROLEUM

EXPLORATION RISK

From a technical perspective exploration risk can be broken down intoseparate geological components. The main categories of geologicalrisking are reservoir, seal, source/timing and trap. Of these, source/timingrepresents the lowest risk as there are at least 3 documented source rocksthroughout the fold belt and numerous fields and discoveries. Seal andreservoir presence has been addressed through extensive stratigraphicand structural work. The 2D seismic acquisition programme conductedin 2003 and early 2004 aimed to address the uncertainties with trapdefinition. The programme has returned highly promising results in whatis a very difficult seismic acquisition environment.

The greatest risk common to all prospects is that of reservoir quality.It is very difficult to predict the porosity and in particular permeability of thereservoir ahead of drilling. Reservoir quality will remain a risk thatis a challenge to reduce. However, all offset discoveries in the differentreservoirs produce sufficient volumes per well to suggest that theprospects should be equally effective.

INERT COMPONENTS IN THE GAS COMPOSITION

The Tibat discovery by Indago contained a high proportion of nitrogenwhich increased the potential development costs to a level that renderedit sub-commercial. These prospects as they are significantly larger, will notnecessarily be sub-commercial if they contain a similar volume of inert gas.

DEVELOPMENT RISK

Many aspects of development risk are similar to exploration risk but arecommensurately lower due to the well control that is available. With WestBukha the main risks is again reservoir quality and effectiveness. At WestBukha, reservoir quality has been addressed using a combinationof geological facies modelling and 3D seismic attribute analysis.Development well locations have been chosen not simply on the basis ofstructural location but where reservoir development is predicted to be best.


PRODUCTION RISK

The Bukha field has been producing steadily for over a decade and therehave been no major surprises in the production performance to date.Material balance calculations are regularly carried out, and actual wellperformance has always closely matched the predicted performance.Thus there is a negligible risk associated with continued production. Wellperformance is continually monitored should the need to take remedialaction ever arise.

RESERVE CALCULATION

Calculation of reserves is subject to uncertainty. Until reserves areprocessed, the quantity of reserve data must be considered as estimates.

FINANCIAL RISK

Indago has had limited revenues to date and has consolidatedaccumulated net losses. Indago intends to invest in developing itsbusiness, as such; further losses and negative cash flows will be incurred.

Indago will require a significant amount of cash to pursue its businessstrategy, to meet its liquidity needs and to service its debt obligations.If Indago can not raise additional finance it may be forced to reduceor delay its capital expenditure programme, to refinance all or a portion ofits existing debt, to sell some of its assets or to obtain additional financing.

The ability of Indago to arrange additional financing and the costof financing depends upon many factors, including, amongst others,economic and capital markets conditions, investor confidence in both theoil and gas industry and in the company, regulatory developments andcredit availability from banks and other lenders.

If Indago is unable to comply with the restrictions and covenants undercertain terms of the existing financing instruments, there could be a defaultunder the terms of these instruments, which could result in theacceleration of repayments of funds that the Group has borrowedor termination of such instruments.

Indago has partially offset some of its financial risk by agreeing theUS$ 20 m "back-up" loan facility.

R I S K S

47 INDAGO PETROLEUM

EQUITY DILUTION

There is significant risk of dilution as Indago will require further capital in future.

'GOING CONCERN' ASSUMPTION

Indago's consolidated financial statements have been prepared assumingthe Company will continue on a "going-concern" basis; however unlessadditional funding is obtained this assumption will have to change andIndago's assets may have to be written down to asset prices realizablein insolvency or distress circumstances.

CONFLICT OF INTEREST

Directors and Officers may serve on Boards of other explorationcompanies and situations may arise where these directors and officers willbe in direct competition with the Company.

In addition, Indago has two significant shareholders, and their interestsmay conflict with the interest of minority shareholders.

ATTRACTION AND RETENTION OF KEY EMPLOYEES

The Group is dependent upon the industry contacts and expertiseof a limited number of its senior management team and accordingly theloss of the services of any of the senior management team could affect thebusiness and profitability of the Group. There is no assurance that theGroup will be able to retain such key executives or senior management.The Company has entered into service contracts with the relevantindividuals to minimise this risk.


PROFIT & LOSS

The main source of revenue for the foreseeable future will be the Bukhafield, and in due course the West Bukha field will contribute to revenue.

At the end of 2004 the Bukha field had largely exhausted its cost recoverypool. In early 2005 Bukha exited cost recovery and is now into a profitsharing arrangement with the government.

The West Bukha well would add to the cost recovery pool in Block 8 andin the event of failure all drilling costs could be cost recovered againstBukha production. Thus the economic impact of a failure is much lowerthan if no cost recovery were available.

Net G&A costs of US$1.5 m per annum are forecast going forward.

On the basis of actual revenues and expenditures the business is currentlybreaking even.

However, the current forecast anticipates that expenditure on NAGPexploration and West Bukha development will commence towards the endof 2005.

F I N A N C I A L A N A LY S I S

Indago's 2005 interim accountsare presented hereafter. Theyreflect the position of Indagojust prior to its managementbuy-out, supported by Meridian.

Though Indago has preparedthree year historic accounts,it must be recognised that theseaccounting statements will beof limited use as a guide to thefuture performance of thebusiness.

Though revenue from Bukhaand West Bukha will coveroperating expenses goingforward, Indago is anexploration and developmentcompany, and it will need toraise further funds in due courseto finance its activities.

49 INDAGO PETROLEUM

CONSOLIDATED PROFIT AND LOSS ACCOUNTS*

6 months ended Year ended Year ended Year endedUS$ 30/06/05 31/12/04 31/12/03 31/12/02

Turnover 1,975,002 15,754,771 7,696,871 9,798,216

Cost of sales (686,077) (7,305,506) (2,671,369) (4,578,405)

Exploration costs written off (1,240,929) (4,845,864) (19,165,948) (4,407,748)

Gross profit/(loss) 47,996 3,603,400 (14,140,446) 812,063

General and administration expenses (1,628,814) (3,137,135) (2,340,162) (1,732,797)

Other income - - 1,127,192 1,947,772

Other expenses (882,014) (2,619,579) (39,858) (100,187)

Operating profit/(loss) (2,462,832) (2,153,313) (15,393,274) 926,851

Debt forgiveness - - - 2,750,723

Operating profit/(loss) after exceptional items (2,462,832) (2,153,313) (15,393,274) 3,677,574

Interest payable and similar charges (2,552) (3,134) (2,285) (2,433)

Profit/(loss) on ordinary activities before taxation (2,464,384) (2,156,447) (15,395,559) 3,675,141

Tax on profit/(loss) on ordinary activities (228,000) - - -

Profit/(loss) on ordinary activities after taxation (2,692,384) (2,156,447) (15,395,551) 3,675,141

Retained profit/(loss) for the period (2,692,384) (2,156,447) (15,395,559) 3,675,141

* Management Accounts still subject to Audit review



BALANCE SHEET

Indago had Current Assets of US$ 5.9 m as at the 30th June 2005,reflecting the contribution of Bukha and short-term loans drawn to fundcurrent financial commitments.

The US$ 2.5 m from related parties refers to loans due from its formerparent Medco.

US$ 5.58 m of the Fixed Assets relates to Oil and Gas properties.

The total Assets of Indago as at the 30th June 2005 were US$ 12.1 m.

Indago has current liabilities of US$ 1.8 m, excluding the inter-companyloan made by Medco.

The US$ 28.5 million reflect a loan extended by Medco. That loan wasrepaid to Medco by Meridian at the time of the management buy-out, andis now due to Meridian.


51 INDAGO PETROLEUM

CONSOLIDATED BALANCE SHEETS*

US$ 30/06/05 31/12/04 31/12/03 31/12/02

Fixed assets

Intangible fixed assets 568,922 - - -

Tangible fixed assets 5,582,628 6,234,588 7,829,836 9,818,432

Total Fixed Assets 6,151,550 6,234,588 7,829,836 9,818,432

Current assets

Inventories 908,282 6,570 1,317,754 -

Trade & other receivables 1,065,547 151,308 200,349 1,971,720

Due from related parties 2,552,834 961,953 2,987,331 13,066,620

Other current assets 143,018 1,321,186 901,229 589,375

Prepayments and accrued income 115,085 2,739 74,353 92,012

Cash at bank and in hand 1,208,945 1,069,365 309,032 345,291

Total Current Assets 5,993,711 3,513,121 5,790,048 16,065,018

Total Assets 12,145,261 9,747,709 13,619,884 25,883,450

Creditors - amounts falling due within one year

Trade creditors and other payables 1,379,700 1,953,165 3,336,842 561,629

Accrued expenses and other liabilities 478,470 199,420 35,730 28,000

Tax payable - - - -

Due to related parties 28,486,916 23,489,783 23,985,524 23,636,474

Total Creditors 30,345,086 25,642,368 27,358,096 24,226,103

Provision for liabilities and charges

Employee gratuities (388,218) - - -

Capital and reserves

Called up share capital 6,889 6,889 6,889 6,889

Additional paid in capital - - - -

Profit and loss account (18,594,932) (15,901,548) (13,745,101) 1,650,458

Equity shareholders' funds (18,588,043) 15,894,659 (13,738,212) 1,657,347

Total Liabilities 12,145,261 9,747,709 13,619,884 25,883,450

* Management Accounts still subject to Audit review



CONSOLIDATED STATEMENT OF CASH FLOWS*

6 months ended Year ended Year ended Year endedUS$ 30/06/05 31/12/04 31/12/03 31/12/02

Net cash (outflow)/inflow from operating activities (3,208,179) 1,870,568 (11,533,740) (575,844)

Capital expenditure and financial investment

Additions to property, plant and equipment (380) - (58,051) (96,879)

Additions to oil and gas properties (58,113) (54,062) - -

Net cash provided/(used) in investing activities (58,493) (54,062) (58,051) (96,879)

Net cash outflow before liquid resources & financing management (3,266,272) 1,816,506 (11,591,791) (672,723)

Financing

Receipts from related undertakings 3,740,295 11,868,911 24,169,474 8,037,298

Payments made to related undertakings (334,043) (12,925,479) (12,613,940) (7,152,273)

Net cash provided/(used) by financing activities 3,406,252 (1,056,568) 11,555,534 885,025

Net increase/(decrease) in cash & cash equivalents 139,580 759,938 (36,257) 212,302

* Management Accounts still subject to Audit reviewSource: Indago Petroleum


53 INDAGO PETROLEUM


PROBABILITY PORTFOLIO VALUATION

When valuing Indago, you are valuing a portfolio of assets. The assetsinclude a producing field, an advanced development, a portfolio of drillableProspects, and an inventory of Leads.

A conventional Net Present Value of Discounted Cash Flows methodologycan be applied to the producing field of Bukha and to the developmentat West Bukha.

The overwhelming value attributable to Indago, however, is to be foundin its exploration portfolio of Prospects and Leads.

The valuation of Prospects and Leads is technically more challenging thanthe valuation of a producing or late development project.

The methodology deployed to value Prospects and Leads is probabilitybased. The valuation of and the investment in exploration portfolio's usingprobability should be done only by experienced and sophisticated investors.

This valuation methodology depends on the input of data from a numberof professionals. Most notably it is derived from data provided by thegeologists and other technical consultants who calculate in the firstinstance the size of the "target" structure and an estimate of recoverableoil, gas, condensate and other liquids. For the sake of clarification, theseare not "proved" nor are they "probable" reserves, these are "target"reserves. That is to say, these "reserves" are what it is hoped willbe established in due course as "proven" or "probable", but until thenthese "reserves" are merely "best estimates" by someone whois recognised as being technically competent to make such an estimate.

Despite a significant amount of money spent on these technical reports,it must be recognised that they are only a "best guess". Until a hole hasbeen drilled into the reservoir you do not know if there is anything downthere, whether it is oil, gas or simply water. You do not know whetherit is sweet or sour. You do not know whether it is commercial or not. Evenif it flows, it is still uncertain as to how much will be extractable. You do notknow the price you will get, nor do you know your costs. As such, oilexploration and development is a very high risk activity. You can, and mostexplorers do drill "dry holes", that is to say despite the extensive geologicalreports they do not find anything. Even when they do they often haveto shut-in and plug the hole for a variety of reasons, and the money spentdrilling that hole is therefore wasted.

VA L U AT I O N

55 INDAGO PETROLEUM

Recognising these difficulties and limitations, having establishedan estimate of recoverable oil, gas, condensate or other liquids, the nextstep is to calculate an estimate of "net back". Briefly, this is another "bestguess" which seeks over the life of field to estimate after capital,development, operating, royalty and tax costs the dollars returnedto an investor for every barrel of oil produced at different price levels.In effect it the net margin per barrel of oil.

With a target recoverable reserve estimate and an estimated "net back",a gross value for each field is then calculated. By its self this gross valueis meaningless; it assumes a 100% success rate which never occursin an exploration portfolio.

Each asset is then risk appraised, and a probability value is assignedto reflect varying degrees of confidence in the probability that the targetreserves will indeed be proven, and the forecast net back will be realised.Probabilities range from 1/20 for early phase Leads, and typically progressto 1/10, 1/5 and 1/2. When moving beyond a 1/2 probability, a Prospectis then normally sufficiently well advanced and there is a high degreeof confidence in the operating parameters for it to be viewedas a development project and for it to be valued according to conventionalDCF methodology.

With regards to the assignment of probabilities, it should be bourn in mindthat exploration is a very expensive business, as such in each phase of itsprogress towards development every Lead and Prospect faces a new"spend or drop" decision. These decisions therefore serve as a roughindicator of the probability to be assigned to each Lead or Prospect.Ultimately, this assignment is a matter of experience and judgement, andit normally follows a discussion either with management, the consultinggeologist or technical consultant. A probability methodology is best appliedwhen there is a rich and varied exploration portfolio and the objectiveis to determine the trade-off between an acceptable degree of risk andexpected return.

As such, no number is taken as an absolute - it is always subjectto revision, it must always be questioned, it is simply a starting point for aninformed discussion. It simply sets the parameters for a view on valuation,and any number calculated is open to further scrutiny and adjustment, andcan be revised up or down as new factors are taken into account.

The strength of this valuation methodology is that it establishes a veryclear and simple map of critical inflection points which may movea company's share price sharply up or down. As such, it is a robust anddynamic valuation methodology well suited to the oil and gas E&P sector.


VALUATION OF INDAGO

NET PRESENT VALUE

BUKHA

Bukha production is expected to continue until 2011 and West Bukhaproduction will commence in 2007. Sustained production of over 3 MMboeshould be achievable for 4 years following West Bukha startup.

Bukha generates steady revenue from LPG sales which averagesUS$99,084 per month. Condensate lifting's occur roughly twice per year.

Using a discount rate of 10 % and the established cost and revenuemetrics, Indago's 40% interest in Bukha is valued at US$ 2.3 m usinga WTI price of US$ 30/bbl.

WEST BUKHA

Indago has undertaken an economic evaluation of West Bukha using theresults of the reservoir simulation model. The West Bukha developmentis robust since even at low oil prices of US$18/bbl and using a lowreserves scenario of 45 Bcf the project will break even. The downsideis limited through the cost recovery mechanism of Bukha production whichis contained within Block 8.

Using a discount rate of 10 % and the forecast cost and revenue metrics,Indago's 40% interest in West Bukha is valued at US$ 40 m.

NAGP EXPLORATION VALUATION

PROSPECTS

Based on the calculated recoverable gas, condensate and LPG target forrecoverable reserves, and a net back calculated for each Prospect, andusing fixed contract gas prices and a WTI of US$ 30/bbl, the valueof Indago's Prospect portfolio is as shown.

VA L U AT I O N

57 INDAGO PETROLEUM

PROSPECT PORTFOLIO

The estimated unrisked recoverable Gas Initially In Place (GIIP) of theProspect portfolio is 6.2 Tcf gas. Using a 1 in 5 probability, and a fixed gasprice of US$ 1.20 and US$ 1.40/MMbtu for the Oman and theUAE respectively, the value is approximately US$ 403 m.

The estimated unrisked Condensate Initially In Place (CIIP) plusLPG volume from the current prospect inventory is 789 MMboe.

Of this, 44% of condensate potential is in a single prospect, Jebel Hafit,which on a combined basis accounts for 42% of targeted Reserves, andfor 44% of the estimated monetary value of those targeted reserves. Hagilis also a significant asset, and accounts for 37% of condensate potential.On a combined basis, Hagil accounts for 34% of targeted Reserves, andfor 38% of the estimated monetary value of those targeted reserves.On a combined basis, Jebel and Hafit represent 82% of the estimatedvalue of Indago.

Using a risked probability at a West Texas Intermediate (WTI) oil priceequivalent of US$ 30/bbl, the value of this condensate portfoliois approximately US$ 1.2 bn.

Reserves* Gross Value† Risked‡

Hagil - Khuff 452,698,246 2,209,718,596 441,943,719

Hagil - Lias/Trass 203,907,018 1,658,363,158 165,836,316

Ash Sham 195,012,281 1,139,788,070 113,978,807

Jebel Hafit 820,189,474 3,560,637,895 712,127,579

Izz 100,014,035 413,270,175 82,654,035

Adam 116,026,316 461,918,421 92,383,684

Total 1,887,847,368 9,443,696,316 1,608,924,140

Jebel Hafit 43.4% 37.7% 44.3%


* On a boe basis.

† At US$ 30/bbl WTI and fixed contractgas prices.

‡ At 1 in 5, except Hagil - Lias/Trias andAsh Sham which are risked at 1 in 20.


LEADS

Based on the competent persons report, the value of Indago's Leadportfolio is shown below. Only those Leads where there is seismic havebeen taken into account for purposes of valuation. The valuation thereafterhas been calculated on the same basis as the Prospect portfolio.However, though there are some relatively advanced Leads which maywell deserve a 1/10 or 1/5 probability weighting, nevertheless the portfoliohas been valued on an uniform 1/20 basis.

LEAD PORTFOLIO

The expectation volume from the current Lead inventory is 212 Bcf gasand 4.7 MMboe condensate plus LPG.

Using a 1 in 20 probability at a WTI oil price equivalent of US$ 30/bbl,the value of the gas, condensate and LPG Lead portfolio is approximatelyUS$ 7.4 m.

Reserves* Gross Value† 1 in 20

Digdaga 0 0 0

Quimara + Jebel WaBah + Yanqul 0 0 0

Sadood + Kabshat+ Dham + Izz Deep 48,192,982 148,923,754 7,446,188

Total 48,192,982 148,923,754 7,446,188


VA L U AT I O N

* On a boe basis.

† At US$ 30/bbl WTI.

59 INDAGO PETROLEUM

GROSS EXPLORATION PORTFOLIO VALUATION

With a target reserve base of 1.93 bn boe, with a gross adjustedprobability value of approximately US$ 1.6 bn, Indago has a range of highimpact exploration opportunities.

GROSS EXPLORATION PORTFOLIO VALUATION

Reserves* Gross Value† Adj.‡

Prospects 1,887,847,368 9,443,696,316 1,608,924,140

Leads 48,192,982 148,923,754 7,446,188

Total 1,936,040,351 9,592,620,070 1,616,370,328

Block 31 820,189,474 3,560,637,895 712,127,579

Jebel Hafit+Leads 42.4% 37.1% 44.1%

RAK 656,605,263 3,868,081,754 607,780,035

Hagil + Hagil L/T 33.9% 40.3% 37.6%


* On a boe basis.

† In US$ calculated at US$ 30/bbl WTI.

‡ Probability at 1 in 5 for Prospects and1 in 20 for Leads.


MATRIX ADJUSTED PORTFOLIO VALUATION

We have set out below a Matrix that shows the valuation of Indago'sportfolio at various WTI/bbl oil prices, and breaks it into its constituentparts of Production, Prospects and Leads. Within Prospects and Leads thevalue attributed to gas and condensate target reserves is also broken out.Gas sales are calculated at a fixed gas price of US$ 1.20 andUS$ 1.40/MMbtu for the Oman and the UAE respectively.

VALUATION MATRIX IN US$

Production US$24 US$30 US$36 US$42 US$48 US$54 US$60 US$66

Producing 1.40 2.30 3.30 4.20 5.10 6.00 6.90 7.80

Development 33.90 40.00 46.00 52.00 58.10 64.10 70.20 76.30

Total 35.3 42.3 49.3 56.2 63.2 70.1 77.1 84.1

Prospects

- Gas 403 403 403 403 403 403 403 403

- Condensate 963 1,206 1,468 1,724 1,987 2,250 2,512 2,771

Total 1,366 1,609 1,871 2,128 2,391 2,653 2,915 3,174

Leads

- Gas 3 3 3 3 3 3 3 3

- Condensate 4 5 6 7 8 8 9 10

Total 7 7 8 9 10 11 12 13

Gross Portfolio Value 1,408 1,659 1,929 2,193 2,464 2,734 3,004 3,271

Portfolio Adjustments

Back-in rights 10.0% 141 166 193 219 246 273 300 327

Hafit + Hagil 30.0% 785 924 1,076 1,223 1,375 1,526 1,678 1,828

Adj. Portfolio 482 569 660 751 843 935 1,026 1,115

Risk Adjustments

- Political 10.0% 48 57 66 75 84 93 103 112

- Management 2.5% 12 14 16 19 21 23 26 28

- Financial 5.0% 24 28 33 38 42 47 51 56

- Technical 2.5% 12 14 16 19 21 23 26 28

- Other 5.0% 24 28 33 38 42 47 51 56

Total Risk Adj.25.0% 120 142 165 188 211 234 256 279

Adj. Risked Valuation 361 427 495 563 632 701 769 837


VA L U AT I O N

61 INDAGO PETROLEUM

Within a US$ 30/bbl to US$ 54/bbl WTI the Gross Probability Value of theIndago portfolio ranges from US$ 1.6 bn to US$ 2.7 bn.

The Gross Probability Value of the Indago portfolio has then been adjusted by:

a. Assuming that all "back-in" rights by Medco are exercised therebyreducing the economic value by an estimated 10%. Indago, however,is seeking to negotiate the buy-back of these rights.

b. Acknowledging the concentration of probability value in Jebel Hafit andHagil, and so as to be prudent that value has been discounted by 70%.

This results an Adjusted Portfolio Valuation that within a US$ 30/bblto US$ 54/bbl WTI ranges from US$ 569 m to US$ 935 m.

In order to be conservative, that value has been further discounted by 25%to reflect a number of possible risk factors.

As such, within a WTI price range of US$ 30/bbl to US$ 54/bbl,the calculated indicative valuation for Indago is between US$ 427 mto US$ 701 m.


bbl(s) Barrel(s)

bcpd Barrels of condensate per day

BCFE One billion cubic feet of gas equivalent

boe Barrels of oil equivalent, 1 bbl of oil is the energy equivalent of 6000 scf of natural gas

bopd Barrels of Oil per Day

scfd Standard Cubic Feet per Day

Bcf One billion cubic feet

MM One million

MMbbl One million barrels of oil

MMcf One million cubic feet of gas

MMcfd One million cubic feet of gas per day

MMcfde One million standard cubic feet of gas per day equivalent

MMbtu One million British thermal units

Tcf One trillion cubic feet of gas

WI The right and interest, expressed as a percentage, which obligates the holder to meet expenses.

G L O S S A R Y

63 INDAGO PETROLEUM


UAE

OIL

The UAE is important to world energy markets because it contains 97.8 bnbarrels, or nearly 8%, of the worlds proven oil reserves. Abu Dhabi holds94% of this amount, or about 92.2 bn barrels. Dubai contains an estimated4.0 bn barrels, followed by Sharjah and Ras Al-Khaimah, with 1.5 bn and100 MMboe of oil, respectively.

The majority of the UAE's crude oil is considered light, with gravities in the32o to 44o API range. Abu Dhabi's Murban 39o and Dubai's Fateh 32o

blends are the UAE's primary export crude streams, though Dubai'sproduction is been falling in recent years due to the decline of itsmodest reserves.

Most of the UAE's oil fields have been producing since the 1960s or early1970s. Proven oil reserves in Abu Dhabi have roughly doubled in the lastdecade, mainly due to significant increases in rates of recovery and thediscover new oil-rich structures in existing fields.

Although Abu Dhabi joined OPEC in 1967, Dubai does not consider itselfpart of OPEC or bound by its quotas. The UAE's total production capacityis 2.50 m bbl/d, so it does not have any spare capacity at the current levelof production.

ADNOC brought in ExxonMobil in June 2004 as a strategic partner in thedevelopment of the Upper Zakhum field, with a 28% ownership stake.ExxonMobil is seeking to upgrade the Upper Zakhum field to raise itscapacity from the current 550,000 bbl/d to 750,000 bbl/d by 2008, andto 1.2 m bbl/d by 2010.

A project to increase the capacity of the onshore Bu Hasa seeksto increase sustainable production capacity to 730,000 bbl/d from thepresent 550,000 bbl/d by the end of 2006. A natural gas reinjection projectalso is planned for the onshore Bab field, which is expected to increasecapacity to 300,000 bbl/d from the current 200,000 bbl/d.

A P P E N D I X 1 : O V E RV I E W O F E N E R G Y S E C T O R

65 INDAGO PETROLEUM

Upgrades planned for the onshore Asab field are set to raise capacity fromthe current 280,000 bbl/d to 310,000 bbl/d by then end of 2006. Threesmall fields, Al-Dabb-iya, Rumaitha, and Shanaget, also are underdevelopment, and are expected to add a total of around 100,000 bbl/dto production capacity in 2006.

The UAE had a total refining capacity at the end of 2002 of 580,000 bbl/d,of which 514,000 bbl/d was located in Abu Dhabi. Consumption in the UAEis estimated to be to 430,000 bbl/d in 2004.

GAS

The UAE's natural gas reserves of 212 Tcf are the world's 5th largest afterRussia, Iran, Qatar, and Saudi Arabia. The largest reserves of 196.1 Tcfare located in Abu Dhabi. Sharjah, Dubai, and Ras Al-Khaimah containsmaller reserves of 10.7 Tcf, 4.1 Tcf, and 1.2 Tcf, respectively.

In Abu Dhabi, the non-associated Khuff natural gas reservoirs beneath theUmm Shaif and Abu Al-Bukhush oil fields rank among the worlds largest.Current natural gas reserves are projected to last for about 150-170 years.

Increased domestic consumption of electricity and growing demand fromthe petrochemical industry have provided incentives for the UAEto increase its use of natural gas. Over the last decade, natural gasconsumption in Abu Dhabi has doubled, and it currently stands at nearly4 Bcf/d. In 2005 Dubai alone will demand an average 810 MMcfd.

The past few years have seen the UAE embark on a massive programof investment in its natural gas sector including a shift toward naturalgas-fired power plants and the transformation of the Taweelah commercialdistrict into a natural gas-based industrial zone.

Much of the natural gas development in the UAE itself involves theextraction of natural gas liquids (NGLs) and reinjection of the gasto maintain pressure in oilfields.


The 2nd phase of the UAE's US$1 bn onshore natural gas developmentprogram (OGD-2) at the Habshan complex located directly over the Baboil and natural gas field was completed in early 2001. This 2nd phaseincluded the construction of 4 trains to process 1 Bcf/d of natural gas,300-500 tons per day (t/d) of natural gas liquids (NGLs), 35,000-55,000 t/dof condensate and up to 2,100 t/d of sulphur. Additional capacityexpansion is planned in the 3rd phase, OGD-3, and will involve theconstruction of 2 additional natural gas processing trains.

Most of the UAE's increased natural gas needs in the next decade areto be satisfied with imported natural gas from Qatar. The Dolphin Projectaims to develop links between the natural gas infrastructures of Qatar, theUAE, and Oman. It will allow the export of non-associated natural gas fromQatar's massive offshore North Dome field. Natural gas supplies fromDolphin are expected to start in late 2006.

Estimated to cost US$8- US$10 bn over the next decade, the project willbegin as a sub sea pipeline from Ras Laffan in Qatar to a landfall in AbuDhabi, which will then be extended to Dubai and northern Oman. In itsinitial phase, the pipeline is to carry 3 Bcf/d of Qatari natural gas to theUAE and Oman, accounting for nearly 10% of total world natural gassupplies shipped by pipeline.

In October 1999, UAE Offsets Group (UOG) and ADNOC issued a jointdeclaration dividing up natural gas distribution between them. Natural gasfrom the Dolphin Project will be the exclusive supply for natural gas-firedpower plants, except in the Western Region of Abu Dhabi, and will alsosupply natural gas for ADNOC contracts with Dubai. Natural gas from theDolphin Project will use the ADNOC distribution network until the projectdevelops its own network.

Oman already has a natural gas pipeline to Fujairah in the UAE, and untilsupplies from Qatar become available, Fujairah is importing natural gasfrom Oman, under a contract held by Dolphin Energy. Supplies of 135MMcf/d of Omani natural gas commenced in January 2004 - the firstnatural gas transmission across national borders on the ArabianPeninsula. Eventually, Qatari natural gas will be supplied to Fujairah.


67 INDAGO PETROLEUM

OMAN

OIL

Oman's current proven reserves amount to 5.5 bn barrels, which arelocated mainly in the country's northern and central areas. The largest andtraditionally most reliable fields are in the north. These fields, whichinclude Yibal, Fahud, Al-Huwaisah, and several others, are now matureand face future declines in production. Oman's total production figure fellsharply from its height of 972,000 bbl/d in 2000 to 784,000 bbl/d in 2003.

Oman's oil fields are generally smaller, more widely scattered, lessproductive, and more costly per barrel than in other Persian Gulf countries.The average well in Oman produces only around 400 bbl/d, aboutone-tenth the volume per well of those in neighbouring countries.To compensate, Oman uses a variety of enhanced oil recovery (EOR)techniques. While these raise production levels, they increase the cost.Per barrel lifting costs rose from US$4.79 in 2002 to US$6.35 in 2003.

Petroleum Development Oman (PDO) is the country's second largestemployer after the government. The company is a consortium comprisedof the Omani government (60%), Shell (34%), Total (4%), and Partex(2%). It holds over 90% of the country's oil reserves, and accounts forabout 94% of production.

PDO's main hopes of stemming its decrease in production involveincreasing recovery rates, and discovering and exploiting new fields,particularly in the south. Among its southern prospects, PDO has the mosthope for a cluster of fields that includes Ghafeer, Sarmad, and Harweel.In this "carbonate stringer play," PDO estimates there may be reservesof 250 m barrels, with a potential maximum production level of 100,000 bbl/d.

Oman has an 85,000 bbl/d refinery at Mina Al Fahal and a 75,000 bbl/drefinery together with port facilities in Sohar. Most of Oman's crude oilexports go to Asia.


NATURAL GAS.

Natural gas has become the chief focus of Oman's economic diversificationstrategy. Intense exploration has raised proven natural gas reserves from12.3 Tcf in 1992 to 29 Tcf in 2004. Most of Oman's reserves arein PDO-owned areas, and the company is Oman's biggest natural gasproducer. Most gas in Oman is associated with oil, but even that whichis non-associated is often located close to the country's oil fields. More than10 Tcf of Oman's non-associated natural gas is located in deep geologicalstructures. In 2002, Oman is estimated to have produced 530 Bcf of natural gas.

Gas consumption in Oman has experienced rapid growth in recent yearsas a result of dramatic economic growth. There has been a push towardsinvestment in gas for domestic consumption to free more oil for export.Growth in LNG exports should further contribute to gas production in Oman.

Expanded utilization of natural gas is central to Omani diversificationplans, both for export as well as for domestic use. Construction workon the country's new liquefied natural gas (LNG) facility is progressing,with production on schedule to begin in 2006. Oman has also commencedwork on many gas-based industrial projects. Other projects are undernegotiation and are likely to be finalized soon.

The LNG plant located at Qalhat, near Sur, is supplied by non-associatedgas from the Saih Nihayda, Saih Rawl and Barik gas fields. The plantcurrently has two 2 trains with a 3rd under construction and dueto be operational late 2005. LNG is currently exported to Korea, Japan andIndia. Oman is one of the participants in the US$3.5 bn Dolphin projectbeing led by Dolphin Energy Limited.


69 INDAGO PETROLEUM

RATINGS SYSTEM

BUY The stock is expected to generate risk-adjusted returns of over10% during the next 12 months.

HOLD The stock is expected to generate risk-adjusted returnsof 0-10% during the next 12 months.

SELL The stock is expected to generate negative risk-adjusted returnsduring the next 12 months.

Risk Qualifier: SPECULATIVE

Stocks bear significantly higher risk that typically cannot be valuedby normal fundamental criteria. Investments in the stock may resultin material loss.

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71 INDAGO PETROLEUM

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