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Niko Reports Results for the Quarter Ended September 30, 2012

CALGARY, ALBERTA -- (Marketwire) -- 11/14/12 -- Niko Resources Ltd. (TSX:NKO) ("Niko" or the "Company") is pleased to report its financial and operating results, including consolidated financial statements and notes thereto, as well as its managements' discussion and analysis, for the three and six month periods ended September 30, 2012. The operating results are effective November 13, 2012. All amounts are in U.S. dollars unless otherwise indicated and all amounts are reported using International Financial Reporting Standards unless otherwise indicated.

PRESIDENT'S MESSAGE TO THE SHAREHOLDERS

The Company has made significant progress on its options for the repayment of its convertible debentures that mature on December 30, 2012. Discussions are at an advanced stage and the Company expects resolution well in advance of maturity.

Niko's strategy has been to acquire a large number of PSCs in emerging exploration trends, use advanced technology to develop a geologically and geographically diverse portfolio of high impact wells, execute leveraged farm-outs, and target partners with worldwide deep water experience. Seismic has been acquired over the vast majority of Niko's exploration acreage and the Company has been successful in farming out blocks and is continuing to work on additional leveraged farm-outs to world-class partners.

It appears to management that the market has greatly overreacted to the initial results of the Company's drilling campaign in Indonesia. The Company has drilled the equivalent of one net well out of a multi-year drilling program. By taking a portfolio approach, Niko will benefit from economies of scale in drilling operations as well as increase the statistical likelihood of success. A number of changes made by Niko for the Ocean Monarch rig being used in the deepwater drilling campaign in Indonesia have and will result in significant time and cost savings for the Company. These changes coupled with leveraged farm-outs, will provide shareholders with exposure to significant exploration potential at relatively low cost.

Niko also announces that Glen Valk, Niko's Corporate Treasurer, will succeed Murray Hesje as Vice President, Finance and Chief Financial Officer of the Company, upon Mr. Hesje's retirement effective at year end. Mr. Valk has over 25 years of finance experience with international E&P companies in Canada, Indonesia and the United States. Mr. Valk joined the Company in August 2012 and has been working with Mr. Hesje to ensure a smooth transition takes place. Mr. Hesje joined Niko in July 2006 and has been instrumental in the Company's growth into new regions such as Indonesia and Trinidad. Importantly upon his retirement, Mr. Hesje will continue with Niko as a special advisor to the Company and the Board of Directors.

Edward S. Sampson - President and Chief Executive Officer, Niko Resources Ltd.

REVIEW OF OPERATIONS AND GUIDANCE


Sales Volumes                                                               
                                                                            
----------------------------------------------------------------------------
                      Three months ended Sept 30,   Six months ended Sept 30
                               2012          2011          2012         2011
----------------------------------------------------------------------------
(MMcfe/d)                    Actual        Actual        Actual       Actual
----------------------------------------------------------------------------
D6 Block, India                 106           169           113          175
Block 9, Bangladesh              59            61            60           59
Others(1)                         7            10             7           10
----------------------------------------------------------------------------
Total production(2)             173           241           181          244
----------------------------------------------------------------------------
(1) Others includes Hazira and Surat in India, and Canada.                  
(2) Figures may not add up due to rounding.                                 

Total sales volumes for the second quarter averaged 173 MMcfe/d compared to 189 MMcfe/d for the first quarter, primarily due to anticipated natural declines in the D6 Block in India without any remedial work being done in the period.

As indicated in the Company's press release of October 19, 2012, production for the full year ended March 31, 2013 is forecast to be 168 MMcfe/d, four percent lower than the Company's previous guidance of 175 MMcfe/d, due to temporary mechanical constraints in Block 9 in Bangladesh. This decrease is expected to reduce oil and gas revenue by approximately $2 million for the full year ended March 31, 2013.


Funds from Operations                                                       
                                                                            
----------------------------------------------------------------------------
                      Three months ended Sept 30,  Six months ended Sept 30,
                               2012          2011          2012         2011
----------------------------------------------------------------------------
(millions of U.S.                                                           
 dollars)                    Actual        Actual        Actual       Actual
----------------------------------------------------------------------------
Funds from operations            34            61            75          121
----------------------------------------------------------------------------

As with sales volumes, the primary reason for the variances in funds from operations relates to production from the D6 Block in India.


Capital Expenditures, net of Proceeds of Farm-outs and Other Arrangements   
                                                                            
----------------------------------------------------------------------------
                                   Three months ended       Six months ended
(millions of U.S. dollars)              Sept 30, 2012          Sept 30, 2012
----------------------------------------------------------------------------
Indonesia                                          12                     48
Trinidad                                           25                     44
All other                                           1                      4
----------------------------------------------------------------------------
Total                                              38                     96
----------------------------------------------------------------------------

Capital additions and expensed exploration spending, net of proceeds of farm-outs and other arrangements, totaled $38 million for the second quarter. Spending related primarily to exploration wells, seismic, other exploration projects, and branch office costs in Indonesia and Trinidad and Tobago. In addition, the Company recorded proceeds of farm-outs of an estimated $9 million, received $36 million from a former partner in exchange for assuming the partner's obligations for future drilling commitments and recorded costs related to pre-drilling activities and drilling inventory to prepare for the upcoming multi-year drilling campaign in Indonesia using the Ocean Monarch drilling rig.

The Company's guidance on its capital program for the year ended March 31, 2013, net of proceeds of negotiated farm-outs and other arrangements, has been revised from $210 million to $170 million, due primarily to deferrals of development spending. In addition, Niko has funded and will continue to fund certain drilling inventory and other costs related to its drilling program in future years. Total spending for the year is expected to be approximately $205 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion and analysis is a review of the Company's financial condition and results of operations as at and for the three and six months ended September 30, 2012. The Company's financial statements are prepared in accordance with International Reporting Standards ("IFRS") and all amounts are in thousands of United States dollars unless specified otherwise. This discussion should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2012. This MD&A is effective November 13, 2012. Additional information relating to the Company, including the Company's Annual Information Form (AIF), is available on SEDAR at www.sedar.com.

The term "the quarter" or "the period" used throughout this Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations and in all cases refers to the period from July 1, 2012 through September 30, 2012. The term "prior year's quarter" or "prior year's period" used throughout this MD&A for comparative purposes and refers to the period from July 1, 2011 through September 30, 2011.

The Company's fiscal year is the 12-month period ended March 31. The terms "Fiscal 2012" and "prior year" is used throughout this MD&A and in all cases refers to the period from April 1, 2011 through March 31, 2012. The terms "Fiscal 2013", "current year" and "the year" are used throughout the MD&A and in all cases refer to the period from April 1, 2012 through March 31, 2013.

Mcfe (thousand cubic feet equivalent) is a measure used throughout the MD&A. Mcfe is derived by converting oil and condensate to natural gas in the ratio of 1 bbl: 6 Mcf. Mcfe may be misleading, particularly if used in isolation. A Mcfe conversion ratio of 1 bbl: 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. MMBtu (million British thermal units) is a measure used in the MD&A. It refers to the energy content of natural gas (as well as other fuels) and is used for pricing purposes. One MMBtu is equivalent to 1 Mcfe plus or minus up to 20 percent, depending on the composition and heating value of the natural gas in question.

Cautionary Statement Regarding Forward-Looking Statements and Information

Certain statements in this MD&A are "forward-looking statements" or "forward-looking information" within the meaning of applicable securities laws, herein "forward looking statements" or "forward looking information". Forward-looking information is frequently characterized by words such as "plan," "expect," "project," "intend," "believe," "anticipate," "estimate," "scheduled," "potential" or other similar words, or statements that certain events or conditions "may," "should" or "could" occur. Forward-looking information is based on the Company's expectations regarding its future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, plans for and results of drilling activity, environmental matters, business prospects and opportunities. Such forward-looking information reflects the Company's current beliefs and assumptions and is based on information currently available to it. Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information including risks associated with the impact of general economic conditions, industry conditions, governmental regulation, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and the Company's ability to access sufficient capital from internal and external sources, the risks discussed under "Risk Factors" and elsewhere in this report and in the Company's public disclosure documents, and other factors, many of which are beyond its control. Although the forward-looking information contained in this report is based upon assumptions which the Company believes to be reasonable, it cannot assure investors that actual results will be consistent with such forward-looking information. Such forward-looking information is presented as of the date of this MD&A, and the Company assumes no obligation to update or revise such information to reflect new events or circumstances, except as required by law. Because of the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on this forward-looking information. See also "Risk Factors."

Specific forward-looking information contained in this MD&A may include, among others, statements regarding:


--  the performance characteristics of the Company's oil, NGL and natural
    gas properties; 
--  oil, NGL and natural gas production levels, sales volumes and revenue; 
--  the size of the Company's oil, NGL and natural gas reserves; 
--  projections of market prices and costs; 
--  supply and demand for oil, NGL and natural gas; 
--  the Company's ability to raise capital and to continually add to
    reserves through acquisitions and development; 
--  future funds from operations; 
--  debt and liquidity levels; 
--  future royalty rates; 
--  future depletion, depreciation and accretion rates; 
--  treatment under governmental regulatory regimes and tax laws; 
--  work commitments and capital expenditure programs; 
--  the Company's future development and exploration activities and the
    timing of these activities; 
--  the Company's future ability to satisfy certain contractual obligations;
--  future economic conditions, including future interest rates; 
--  the impact of governmental controls, regulations and applicable royalty
    rates on the Company's operations; 
--  the completion of the Offering and uses of proceeds to be received from
    the Offering; 
--  the Company's expectations regarding the development and production
    potential of its properties; 
--  the Company's expectations regarding the costs for development
    activities; 
--  the resolution of various legal claims raised against the Company; 
--  the potential for asset impairment and recoverable amounts of such
    assets; and 
--  changes to accounting estimates and accounting policies. 

The forward-looking statements contained in this MD&A are based on certain key expectations and assumptions made by us, including expectations and assumptions relating to prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the availability of capital to undertake planned activities and the availability and cost of labor and services. Although the Company believes that the expectations reflected in the forward-looking statements in this MD&A are reasonable, it can give no assurance that such expectations will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and natural gas industry in general, such as operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation, as well as the other risk factors identified under "Risk Factors" herein. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated, and can be profitably produced in the future. You are cautioned that the foregoing list of factors and risks is not exhaustive.

The Company prepares production forecasts taking into account historical and current production, and actual and planned events that are expected to increase or decrease production and production levels indicated in its reserve reports.

The Company prepares capital spending forecasts based on internal budgets for operated properties, budgets prepared by the Company's joint venture partners, when available, for non-operated properties, field development plans and actual and planned events that are expected to affect the timing or amount of capital spending.

The Company prepares operating expense forecasts based on historical and current levels of expenses and actual and planned events that are expected to increase or decrease production and/or the associated expenses.

The Company discloses the nature and timing of expected future events based on budgets, plans, intentions and expected future events for operated properties. The nature and timing of expected future events for non-operated properties are based on budgets and other communications received from joint venture partners.

The Company updates forward-looking information related to operations, production and capital spending on a quarterly basis when the change is material and update reserve estimates on an annual basis. See "Risk Factors" for discussion of uncertainties and risks that may cause actual events to differ from forward-looking information provided in this report. The information contained in this report, including the information provided under the heading "Risk Factors," identifies additional factors that could affect the Company's operating results and performance. The Company urges you to carefully consider those factors and the other information contained in this report.

The forward-looking statements contained in this report are made as of the date hereof and, unless so required by applicable law. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this report are expressly qualified by this cautionary statement.

Non-IFRS Measures

The selected financial information presented throughout this MD&A is prepared in accordance with IFRS, except for "funds from operations", "operating netback", "funds from operations netback", "earnings netback", "segment profit" and "working capital". These non-IFRS financial measures, which have been derived from financial statements and applied on a consistent basis, are used by management as measures of performance of the Company. These non-IFRS measures should not be viewed as substitutes for measures of financial performance presented in accordance with IFRS or as a measure of a company's profitability or liquidity. These non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.

The Company examined funds from operations to assess past performance and to help determine its ability to fund future capital projects and investments. Funds from operations is calculated as cash flows from operating activities prior to the change in operating non-cash working capital, the change in long-term accounts receivable and exploration and evaluation costs expensed to the statement of comprehensive income.

The Company examined operating netback, funds from operations netback, earnings netback and segment profit to evaluate past performance by segment and overall.


--  Operating netback is calculated as oil and natural gas revenues less
    royalties, profit petroleum expenses and operating expenses for a given
    reporting period, per thousand cubic feet equivalent (Mcfe) of
    production for the same period, and is a measure of the before-tax cash
    margin for every Mcfe sold. 
--  Funds from operations netback is calculated as the funds from operations
    per Mcfe and represents the cash margin for every Mcfe sold. Earnings
    netback is calculated as net income per Mcfe and represents net income
    for every Mcfe sold. 
--  Segment profit is defined as oil and natural gas revenues less
    royalties, profit petroleum expenses, production and operating expenses,
    depletion expense, exploration and evaluation expense and current and
    deferred income taxes related to each business segment. 
--  The Company defines working capital as current assets less current
    liabilities and uses working capital as a measure of the Company's
    ability to fulfill obligations with current assets. 

OVERALL PERFORMANCE                                                         
                                                                            
Funds from Operations                                                       
                                                                            
----------------------------------------------------------------------------
                      Three months ended Sept 30, Six months ended Sept 30, 
(thousands of U.S.                                                          
 dollars)                      2012          2011         2012         2011 
----------------------------------------------------------------------------
Oil and natural gas                                                         
 revenue                     58,080        86,810      113,179      175,088 
Other income                    311             -          311            - 
Production and                                                              
 operating expenses          (9,696)       (9,057)     (17,574)     (18,088)
General and                                                                 
 administrative                                                             
 expenses                    (2,266)       (1,857)      (4,323)      (4,015)
Net finance expense          (6,081)       (5,588)     (12,165)     (11,389)
Realized foreign                                                            
 exchange loss               (2,833)       (3,217)      (2,480)      (3,368)
Current income tax                                                          
 recovery / (expense)          (285)       (1,183)       2,091       (4,290)
Minimum alternate tax                                                       
 expense                     (3,125)       (4,917)      (4,410)     (12,797)
----------------------------------------------------------------------------
Funds from operations                                                       
 (1)                         34,105        60,991       74,629      121,141 
----------------------------------------------------------------------------
(1) Funds from operations is a non-IFRS measure as defined under "Non-IFRS  
measures" in this MD&A.                                                     

Oil and natural gas revenue during the three months ended September 30, 2012 decreased $29 million compared to the prior year's quarter. Oil and natural gas revenue during the six months ended September 30, 2012 decreased $62 million compared to the prior year's period. These decreases were primarily due to lower natural gas and crude oil sales from the D6 Block along with an adjustment to profit petroleum expense at the Hazira Field recorded in the first quarter of fiscal 2013.

Sales volumes from the D6 Block were 106 MMcfe/d and 113 MMcfe/d in the quarter and year-to-date period, respectively compared to 169 MMcfe/d and 175 MMcfe/d in the prior year's quarter and year-to-date period, respectively. The Company expects decline in production from the D6 Block to continue unless incremental production volume is added from new fields in the D6 Block.

An additional $6 million of profit petroleum expense for the Hazira Field reduced oil and natural gas revenue in the first quarter of fiscal 2013. The adjustment to profit petroleum expense was the result of a court ruling finding that the 36-inch natural gas sales pipeline that Niko and GSPC constructed to connect the Hazira Field to the local industrial area was not eligible for cost recovery. There was a current income tax recovery of $2 million as a result of this adjustment to profit petroleum expense, which is deductible for tax purposes.

The Indian rupee strengthened against the US dollar during the quarter and year to date. As a result, there was a realized foreign exchange loss during the quarter due to revaluing Indian rupee based accounts payable to US dollars.

Minimum alternate tax expense is calculated on accounting income from the D6 Block. Higher depletion rates reduced accounting income and minimum alternate tax expense.


Net Income (Loss)                                                       
                                                                        
------------------------------------------------------------------------
                           Three months ended          Six months ended 
                                     Sept 30,                  Sept 30, 
(thousands of U.S.                                                      
 dollars)                   2012         2011         2012         2011 
------------------------------------------------------------------------
Funds from                                                              
 operations (non-                                                       
 IFRS measure)            34,105       60,991       74,629      121,141 
Production and                                                          
 operating expenses         (330)        (493)        (637)      (1,017)
Depletion and                                                           
 depreciation                                                           
 expense                 (39,204)     (27,778)     (81,616)     (58,969)
Exploration and                                                         
 evaluation expense      (52,879)     (45,117)     (89,300)     (59,270)
Loss on short-term                                                      
 investments                 (32)      (9,783)        (276)      (8,568)
Asset (impairment) /                                                    
 recovery                    181            -      (38,919)          69 
Share-based                                                             
 compensation                                                           
 expense                  (3,342)      (6,511)      (6,902)     (12,698)
Finance expense           (2,162)      (1,951)      (4,158)      (3,750)
Unrealized foreign                                                      
 exchange (loss) /                                                      
 gain                      6,657       (3,964)       1,512       (3,875)
Deferred income tax                                                     
 (expense) /                                                            
 recovery                 28,433        4,603       24,971         (184)
------------------------------------------------------------------------
                         (28,573)     (30,003)    (120,696)     (27,121)
------------------------------------------------------------------------
Change in accounting                                                    
 estimate-deferred                                                      
 taxes                         -            -            -      (57,865)
Other expenses -                                                        
 impact of option                                                       
 cancellation                  -      (13,913)           -      (13,913)
Net loss                 (28,573)     (43,916)    (120,696)     (98,899)
------------------------------------------------------------------------

The decrease in funds from operations is described above. Other items affecting net loss are described below.

Depletion and depreciation expense for the D6 Block for the quarter increased by $10 million to $35 million as a result of the revision to the reserve volumes and future costs included in the March 31, 2012 reserve report. This amount was partially offset by the effect of lower production.

Exploration and evaluation expense of $52 million for the quarter is comprised of: $35 million for costs associated with three unsuccessful exploration wells, $7 million for seismic and other exploration projects, $1 million for payments that are specified in the various PSC, $4 million for branch office costs for all exploration properties and $2 million for new venture activities. Exploration and evaluation expense of $36 million for the first quarter of fiscal 2013 included: $12 million for costs associated with one unsuccessful exploration well, $12 million for seismic and other exploration projects, $5 million for payments that are specified in the various PSC, $5 million for branch office costs for all exploration properties and $2 million for new venture activities.

The loss on short term investments is a result of mark to market valuation of these investments.

The Company recognized an asset impairment of $39 million in the first quarter of fiscal 2013 when it reassessed the recoverable amount of the Qara Dagh Block exploration and evaluation asset in Kurdistan.

Share-based compensation expense for the quarter and year-to-date decreased by $3 million and $6 million respectively, as a result of a decrease in the fair value per stock option granted as a result of lower stock price during the quarter as compared to the prior year's quarter.

The Indian Rupee strengthened against the U.S. dollar during the quarter and year-to-date. As a result, there was an unrealized foreign exchange gain during the quarter due to revaluing the Indian-rupee based income tax receivable to U.S. dollars.

Deferred tax recovery for the quarter and year-to-date increased by $24 million and $25 million, respectively, due to a reduction in deferred tax liabilities resulting from a reduction in exploration and evaluation assets related to proceeds from a farm out and from a former partner in exchange for assuming the partner's obligation for future drilling commitments.

In the prior year to date, the change in accounting estimate is related to deferred income tax as a result of estimating the amount of taxable temporary differences reversing during the tax holiday period.

Capital Expenditures, net of Proceeds of Farm-outs and Other Arrangements

The following table sets forth the capital additions and exploration and evaluation costs expensed directly to income, net of proceeds of farm-outs and other arrangements, for the six months ended September 30, 2012.


----------------------------------------------------------------------------
Six months ended September 30, 2012                                         
----------------------------------------------------------------------------
                                                                            
                                                                   Directly 
                                Additions to      Additions        expensed 
                                 exploration     related to     exploration 
                              and evaluation         future  and evaluation 
(thousands of U.S. dollars)     assets(1) (2)      drilling         costs(1)
----------------------------------------------------------------------------
Indonesia                             46,490         27,799          18,428 
Trinidad                              26,482          1,516          15,122 
All other                                485              -           2,872 
----------------------------------------------------------------------------
Total                                 73,457         29,315          36,422 
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Six months ended September 30, 2012                                         
----------------------------------------------------------------------------
                                                                            
                                Additions to  Proceeds from                 
                                   property,  farm outs and                 
                                   plant and          other                 
(thousands of U.S. dollars)      equipment(1)  arrangements            Total
----------------------------------------------------------------------------
Indonesia                                129        (45,203)          47,643
Trinidad                                 404              -           43,524
All other                                924              -            4,281
----------------------------------------------------------------------------
Total                                  1,457        (45,203)          95,448
----------------------------------------------------------------------------
(1) Share-based compensation and other non-cash items are excluded. Includes
additions in the year that were subsequently written off.                   
(2) Includes additions in the year that were subsequently written off.      

Indonesia

Additions to exploration and evaluation assets for Indonesia for the six months ended September 30, 2012 relate to two wells in the Lhokseumawe block and one well in the North Ganal block. The first well in the Lhokseumawe block, with a cost of $12 million, did not reach target depth due to mechanical problems and was expensed in the first quarter of fiscal 2013. The second well in the Lhokseumawe block, with a cost of $12 million and one well in North Ganal block, with a cost of $3 million, did not encounter commercial quantities of hydrocarbons and were expensed in the current quarter. The remaining additions in Indonesia relate to the costs of drilling inventory and activities to prepare for the upcoming drilling campaign. Subsequent to the end of the current quarter, drilling of the Jayarani-1 well in the Lhokseumawe block was completed and no commercial reservoir was encountered. Costs incurred to September 30, 2012 of $6 million along with costs incurred subsequent to end of the quarter related to this well will be expensed in the third quarter of fiscal 2013. Exploration and evaluation costs expensed directly to income include $13 million for seismic and other exploration projects and $5 million for branch office costs. In addition, the Company recorded proceeds of a farm-out of $9 million and received $36 million from a former partner in exchange for assuming the partner's obligation for future drilling commitments.

Trinidad and Tobago

Additions to exploration and evaluation assets for Trinidad and Tobago for the six months ended September 30, 2012 relate to the Shadow-1 and Maestro-1 wells drilled in Block 2AB. The Shadow-1 well with a cost of $20 million did not encounter significant hydrocarbon-bearing sandstone and was expensed in the current quarter. Subsequent to the end of the current quarter, hydrocarbons were encountered in the Maestro-1 well at the Lower Cretaceous level, however, no significant reservoir intervals that could be deemed commercial were encountered and costs incurred to September 30, 2012 of $5 million along with costs incurred subsequent to end of the quarter will be expensed in the third quarter of fiscal 2013. Exploration and evaluation costs expensed directly to income include $5 million of costs related to seismic exploration for the Guayaguayare area and $1 million of payments that are specified in the various PSCs.

BACKGROUND ON PROPERTIES

The Company's diversified portfolio of producing, development and exploration assets is described below.

Producing Assets

The Company's principal producing natural gas and crude oil assets are in the D6 Block in India and in Block 9 in Bangladesh.

D6 Block, India

The Company entered into the PSC for the D6 Block in India in 2000 and has a 10 percent working interest, with Reliance, the operator, holding a 60 percent interest and BP holding the remaining 30 percent interest. The D6 Block is 7,645 square kilometers lying approximately 20 kilometers offshore of the east coast of India.

Successful exploration programs in the D6 Block led to the discoveries of the Dhirubhai 1 and 3 natural gas fields in 2002 and the MA crude oil and natural gas field in 2006.

Production from the crude oil discovery in the MA field commenced in September 2008 and commercial production commenced in May 2009. Six wells are tied into a FPSO, which stores the crude oil until it is sold on the spot market at a price based on the Bonny Light reference price and adjusted for quality, and four of these wells are currently on production. The Company expects to drill an additional gas development well and convert the two suspended oil wells into gas producing wells to accelerate the production of the reservoir's gas reserves.

Field development of the Dhirubhai 1 and 3 fields included the drilling and tie-in of 18 wells, construction of an offshore platform and onshore gas plant facilities. Production from the Dhirubhai 1 and 3 natural gas discoveries commenced in April 2009 and commercial production commenced in May 2009. The natural gas produced from offshore is being received at an onshore facility at Gadimoga and is sold at the inlet to the East-West Pipeline owned by Reliance Gas Transportation Infrastructure Limited.

Production from the Dhirubhai 1 and 3 fields peaked in March 2010 and has decreased since then, primarily due to natural declines of the fields and greater than anticipated water production. Four additional wells have been drilled in the post-production phase of drilling. Based on the information obtained from three wells drilled within the main channel fairway, the Company has determined that it is not economic to tie-in any of these three wells at the present time. The fourth well was drilled outside of the main channel fairway and did not encounter economic quantities of natural gas. Six of the original 18 wells are currently shut-in and several others are choked, primarily due to current constraints in water handling capacity. Increased water handling capacity and additional booster compression is expected to be installed over the next two years to address the decline in reservoir pressure.

The Company expects production to continue to decline until new field production is added from identified development opportunities. See "Background on Properties - Development Opportunities".

The PSC for the D6 Block requires that natural gas be sold at arm's length prices, with "arm's length" defined as sales made freely in the open market between willing and unrelated sellers and buyers, and that the pricing formula be approved by the GOI. In May 2007, Reliance, on behalf of the joint venture partners, discovered an arm's length price for the sale of gas on a transparent basis with a term of three years and, accordingly, proposed a gas price formula to the GOI. In September 2007, the GOI approved a pricing formula with some modification to the proposed formula. As a result of these modifications, the gas price is capped at $4.20/MMBtu and the formula was declared effective for a period of five years rather than the three years proposed by Reliance. The Company has signed numerous gas sales contracts with customers in the fertilizer, power, steel, city gas distribution, liquefied petroleum gas market and pipeline transportation industries, and all of these contracts expire on March 31, 2014. In June 2012, Reliance submitted to the GOI for approval a proposal for a new crude oil-linked pricing formula to be used in new sales contracts for the period commencing April 1, 2014. The proposed formula was based on the pricing formula under a contract for long-term import of LNG into India and was universally accepted by arm's length buyers who bid in large numbers in an open price discovery process. Using JCC crude oil pricing for July 2012, the proposed pricing formula would result in a gas price that is approximately $13/MMBtu, three times the current gas price. The GOI is currently reviewing the proposed price formula. The production and operating expenses for the D6 Block relate primarily to the offshore wells and facilities, the onshore gas plant facilities and the operating fee portion of the lease of the FPSO. The majority of these expenses are fixed in nature with repairs and maintenance expenditures incurred as required.

The Company calculates and remits profit petroleum expense to the GOI in accordance with the PSC for the D6 Block. The profit petroleum calculation considers capital, operating and other expenditures made by Reliance on behalf of the joint venture partners. Because there are unrecovered costs to date, the GOI's share of profit petroleum has amounted to the minimum level of one percent of gross revenue. Profit petroleum expense will increase above the minimum level once past unrecovered costs have been fully recovered. The Company has included certain costs in the profit petroleum calculations that are being contested by the GOI and has received notice from the GOI making allegations in relation to the fulfillment of certain obligations under the PSC for the D6 Block. (Refer to note 14 to the consolidated financial statements for six months ended September 30, 2012 for a complete discussion of this contingency.)

The Company currently pays royalty expense of five percent of gross revenue, increasing to ten percent of gross revenue in May 2016. Royalty payments are deductible in calculating profit petroleum.

The Company pays the greater of minimum alternate tax and regular income taxes for the D6 Block. In the calculation of regular income taxes, the Company believes it is entitled to a seven-year income tax holiday commencing from the first year of commercial production and has claimed the tax holiday in the filing of tax return for fiscal 2012. There is currently uncertainty in India regarding the applicability of this tax holiday to natural gas. Minimum alternate tax is the amount of tax payable in respect of accounting profits. Minimum alternate tax paid can be carried forward for 10 years and deducted against regular income taxes in future years.

Block 9, Bangladesh

In September 2003 the Company acquired a 60 percent working interest in the PSC for Block 9. Tullow, the operator, holds a 30 percent interest and the remaining 10 percent interest is held by BAPEX. Block 9 covers approximately 1,770 square kilometers of land in the central area of Bangladesh surrounding the capital city of Dhaka. Natural gas and condensate production for the Bangora field in Block 9 commenced in May 2006 and gas is transported from four currently producing wells to a gas plant in the block.

The Company's share of production from the Bangora field reached a sustained rate of production of 60 MMcf/d in 2009. The Company expects to drill two probable undeveloped locations in Fiscal 2014 which, if successful could offset the natural decline expected in the Bangora field through 2015. The Company has signed a GPSA including a price of $2.34/MMBtu (or $2.32/Mcf), which expires at the earliest of the end of commercial production, at expiry of the PSC (March 31, 2026) and 25 years after approval of the field development plan (May 15, 2032). Petrobangla is the sole purchaser of the natural gas production from this field. The sales delivery point is at facility and thereafter is the responsibility of Petrobangla and is transported via Trunk Pipeline.

The production and operating expenses for Block 9 relate primarily to the onshore wells and facilities, including a gas plant and pipeline. The majority of these expenses are fixed in nature with repair and maintenance expenditures incurred as required.

The Company calculates and remits profit petroleum expense to the GOB in accordance with the PSC for Block 9. The profit petroleum calculation considers capital, operating and other expenditures made by the joint venture, which reduces the profit petroleum expense. To date, the GOB's share of profit petroleum amounted to the minimum level of 34 percent of gross revenue based on the profit petroleum provisions of the PSC. The profit petroleum percentage of gross revenue will increase above the minimum level of 34 percent of gross revenue once past unrecovered allowable costs have been fully recovered.

Under the terms of the Block 9 PSC the Company does not make payment to the GOB with respect to income tax.

Development Opportunities

The Company has undeveloped discoveries in D6 and NEC 25 blocks in India and in Block 5(c) in Trinidad and Tobago. For each of the proposed developments of these discoveries, the Company shall make final investment decisions if and when development plans are approved by the respective governments with pricing terms for the natural gas sales acceptable to the respective joint venture partners. The Company expects that approval of any or all of these developments will significantly increase the Company's booked reserves and provide the opportunity for significant production growth in the next three to six years.

The following is a brief description of these opportunities and proposed development plans.

Additional Areas, D6 Block, India

The Company's exploration program has identified three additional areas in the D6 Block for potential future development. An integrated development strategy for the D6 Block, including these undeveloped areas, is currently being prepared by Reliance with input from the joint venture partners and under this strategy, the Company expects development plan for the three areas to be submitted for approval in late 2012 or early 2013. The development of these areas is expected to be completed within three to four years after the approval of the development plans. The plans are likely to include the re-entry and completion of certain existing wells and the drilling of new wells, all connected with new flow-lines and other facilities into existing D6 Block infrastructure.

NEC-25 Block, India

The Company has a 10 percent working interest in the NEC-25 Block, with Reliance, the operator, holding a 60 percent interest and BP holding the remaining 30 percent interest. The remaining contract area comprises 9,461 square kilometres offshore adjacent to the east coast of India. Exploration and appraisal drilling has been conducted on the block and Reliance is working to finalize the development plan for seven discovered natural gas fields to be submitted for approval in early 2013. Based on work done to date, the development is expected to include the re-entry and completion of certain existing wells and the drilling of new wells, all connected via new flow-lines and other facilities into a new offshore central processing platform. The produced natural gas is expected to be transported onshore via a new pipeline.

Block 5(c), Trinidad and Tobago

The Company has a 25 percent working interest in Block 5(c) with the BG Group, the operator, holding the remaining 75 percent working interest in this offshore development area that covers 324 square kilometres. In October 2011, the BG Group submitted a development plan to the GTT for approval. Development of natural gas production from two discovered fields in the block is expected to require the drilling of new wells, construction of new flow-lines and other facilities, and expansion of an existing platform in the adjacent Block 6(b) operated by the BG Group.

Exploration Opportunities

The Company's business strategy is to commit resources to finding, developing and producing exploration opportunities that have the potential for a "high impact"' on the Company. Exploration acreage is generally obtained by committing to acquire and process a specified amount of seismic and in most cases, drill one or more exploration wells. The Company generally uses advanced technology including high resolution multi-beam data collection and analysis, sub-sea coring and focused 3D seismic to reduce costs associated with selecting prospects to drill and increase the probability of success. The Company generally uses the information acquired to farm-out its blocks to world-class industry partners under terms where the partners fund their share of sunk costs and carry a disproportionate share of drilling costs.

The Company holds interests in contract areas covering 176,071 gross square kilometers of undeveloped land, primarily in Indonesia and Trinidad and Tobago.

Indonesia

The Company holds interests in 22 offshore exploration blocks in Indonesia, covering 119,145 square kilometers. The Company has successfully farmed out interests in several of its blocks and is working with various parties on additional farm-outs to reduce its share of future drilling costs. The table below indicates the operator, the location of, the award date, working interest and the size of the block.


----------------------------------------------------------------------------
                                                                        Area
                               Offshore                 Working      (Square
Block Name         Operator        Area  Award Date    Interest  Kilometres)
----------------------------------------------------------------------------
Lhokseumawe (1)     Zaratex        Aceh   Oct. 2005          30%       4,431
Bone Bay               Niko  Sulawesi S   Nov. 2008         100%       4,969
                               Makassar                                     
South East Ganal       Niko      Strait   Nov. 2008         100%       4,868
Seram                  Niko    Seram NE   Nov. 2008          55%       4,991
South Matindok         Niko Sulawesi NE   Nov. 2008         100%       5,182
                               Makassar                                     
West Sageri            Niko      Strait   Nov. 2008         100%       4,977
Cendrawasih           Exxon    Papua NW    May 2009          45%       4,991
Kofiau                 Niko     Papua W    May 2009        57.5%       5,000
Kumawa                 Niko    Papua SW    May 2009         100%       5,004
East Bula              Niko    Seram NE   Nov. 2009          55%       6,029
Halmahera-Kofiau       Niko     Papua W   Nov. 2009       51%(2)       4,926
                               Makassar                                     
North Makassar         Niko      Strait   Nov. 2009          30%       1,787
West Papua IV          Niko    Papua SW   Nov. 2009       51%(2)       6,389
Cendrawasih Bay                                                             
 II                  Repsol    Papua NW    May 2010          50%       5,073
Cendrawasih Bay                                                             
 III                   Niko    Papua NW    May 2010          50%       4,689
Cendrawasih Bay                                                             
 IV                    Niko    Papua NW    May 2010          50%       3,904
                                  Sunda                                     
Sunda Strait I         Niko      Strait    May 2010         100%       6,960
Obi                    Niko     Papua W   Nov. 2011       51%(3)       8,057
                               Makassar                                     
North Ganal             Eni      Strait   Nov. 2011          31%       2,432
Halmahera II        Statoil     Papua W   Dec. 2011          20%       8,215
South East Seram       Niko    Papua SW   Dec. 2011         100%       8,217
Aru                    Niko    Papua SW   July 2012          60%       8,054
----------------------------------------------------------------------------
(1) In October 2012, the Company received government approval for its farm- 
in to the Lhokseumawe block.                                                
(2) The Company has entered into farm-out agreements for the West Papua IV  
and Halmahera-Kofiau blocks that, subject to government approval, will be   
reduce its working interest to 48 percent and 40 percent, respectively.     
(3) The Company has entered into a farm-out agreement for the Obi block     
that, subject to government approval, will reduce its working interest to 42
percent.                                                                    

All of the Indonesian blocks are in their initial three year exploration period with the exception of the Lhokseumawe block. The seismic work commitments on the majority of the blocks have been fulfilled and as at September 30, 2012, the Company had remaining minimum work commitments to drill a total of ten wells. As at September 30, 2012, the Company's share of the remaining minimum work commitments as specified in the PSCs for the exploration period was $118 million to be spent at various dates through June 2015. The minimum work commitments are based on the Company's share of the estimated cost included in the PSCs and represent the amounts the host government may claim if the Company does not perform the work commitments. The actual cost of fulfilling work commitments is expected to materially exceed the amount estimated in the PSCs. The Company has applied or have plans to apply for extensions where drilling activity is planned. The Company is required to relinquish a portion of the exploration acreage after the first exploration period; however, the Company has received extensions in order to fulfill the well commitments on certain blocks.

Trinidad and Tobago

The Company holds interests in ten contract areas in Trinidad and Tobago, covering 9,945 square kilometers. The table below indicates the operator, the location of, the award date, the working interest and the size of the block.


----------------------------------------------------------------------------
Exploration                                             Working Area (Square
 Area          Operator          Location  Award Date  interest  Kilometres)
----------------------------------------------------------------------------
Block 2AB          Niko          Offshore   July 2009     35.75%       1,605
Guayaguayare-                                                               
 Shallow                                                                    
 Horizon           Niko  Onshore/Offshore   July 2009        65%       1,134
Guayaguayare-                                                               
 Deep Horizon      Niko  Onshore/Offshore   July 2009        80%       1,190
Central Range-                                                              
 Shallow                                                                    
 Horizon          Parex           Onshore  Sept. 2008     32.50%         734
Central Range-                                                              
 Deep Horizon     Parex           Onshore  Sept. 2008        40%         856
Block 4(b)         Niko          Offshore  April 2011       100%         754
NCMA2              Niko          Offshore  April 2011        56%       1,020
NCMA3              Niko          Offshore  April 2011        80%       2,107
Block 5(c)     BG Group          Offshore   July 2005        25%         324
MG Block                                                                    
 (License)         Niko          Offshore   July 2007        70%         223
----------------------------------------------------------------------------

The seismic work commitments on the majority of the blocks have been fulfilled and as at September 30, 2012, the Company had remaining minimum work commitments to drill a total of eleven wells. As at September 30, 2012, the minimum remaining work commitments under the PSCs were $175 million, to be spent at various dates through April 2016. The actual cost of fulfilling work commitments may materially exceed the amount estimated in the PSCs. The Company is working with various parties on farm-outs to reduce its share of future drilling costs.

Other Properties

India

Hazira Field

Niko is the operator of the Hazira Field and holds a 33.33 percent interest in this field. The field is located close to several large industries about 25 kilometers southwest of the city of Surat and covers an area of approximately 50 square kilometers on and offshore. In addition, Niko and GSPC have constructed a 36-inch gas sales pipeline to the local industrial area. The Company has constructed an offshore platform, an LBDP, a gas plant and an oil facility at the Hazira Field. The Company has one significant contract for the sale of natural gas from the Hazira Field at a price of $4.86/Mcf expiring April 30, 2016, which accounted for five percent of total revenues during the quarter. The commitment for future physical deliveries of natural gas under this contract exceeds the expected related future production from total proved reserves from the Hazira Field estimated using forecast prices and costs. Refer to note 14(c) to the consolidated financial statements for six months ended September 30, 2012 for a complete discussion of these contingencies.

Surat Block

The Company holds and is the operator of a development area in the 24 square kilometer Surat Block located onshore adjacent to the Hazira Field in Gujarat State, India. The natural gas production from the Surat Block commenced in April 2004 and is transferred to the customer via 6-inch pipeline to the customer's facility. The Company has a gas plant at Surat Block and all the production from the Surat Block is sold to one customer with a current price of $6.00/Mcf expiring March 31, 2013. Sales of natural gas to this customer accounted for two percent of the Company's total revenues during the quarter.

Madagascar

In October 2008, the Company farmed in on a PSC for a property located off the west coast of Madagascar covering an area of approximately 16,845 square kilometers. The Company will earn a 75 percent participating interest in the Madagascar block and any extension or renewal thereof or amendment thereto and are the operator of this block. The Company has completed a multi-beam sea bed coring and 3,200 square kilometers of 3D seismic on the block. The Company has work commitments for an exploration well and its share of the remaining costs pursuant to the PSC is $10 million prior to September 2015. The actual cost of fulfilling work commitments may exceed the amount estimated in the PSC.

Pakistan

The Company holds and operates the four blocks comprising the Pakistan Blocks, which are located in the Arabian Sea near the city of Karachi and cover an area of 9,921 square kilometers. The Company has acquired 2,142 square kilometers of 3D seismic data on the blocks. The Company has received a one-year extension to the Phase I exploration period through seismic exploration activity.

Kurdistan

The Company holds a 49% working interest and operates the Qara Dagh Block, which covers approximately 846 square kilometers onshore. The Qara Dagh Block has an initial exploration period of five years, extendable on a yearly basis up to a maximum period of seven contract years. A 2D seismic exploration program was conducted and data acquired on the block that led to the selection of a drilling location. An exploratory well was drilled between May 2010 and October 2011. The 2D seismic program and the initial exploratory well satisfy the work commitments for the first sub-period of the initial term of the PSC. The second sub-period of the initial term includes further 2D or 3D seismic data and drilling one exploration well. The Company's share of the estimated cost of the remaining work commitment for the exploration period is $6 million to be spent by May 2013.


SEGMENT PROFIT                                                              
                                                                            
India                                                                       
                                                                            
----------------------------------------------------------------------------
                    Three months ended Sept 30,   Six months ended Sept 30, 
(thousands of U.S.                                                          
 dollars)                    2012          2011          2012          2011 
----------------------------------------------------------------------------
Natural gas revenue        40,007        63,545        85,120       130,358 
Oil and condensate                                                          
 revenue (1)               12,125        18,884        22,457        37,653 
Royalties                  (2,601)       (4,136)       (5,456)       (8,541)
Profit petroleum           (1,016)       (1,314)       (8,338)       (3,237)
Production and                                                              
 operating expenses        (7,318)       (7,887)      (13,404)      (15,340)
Depletion and                                                               
 depreciation                                                               
 expense                  (35,163)      (24,539)      (73,465)      (52,741)
Exploration and                                                             
 evaluation expenses         (414)          (85)         (354)         (542)
Current income tax                                                          
 recovery /                                                                 
 (expense)                   (281)       (1,180)        2,099        (4,293)
Minimum alternate                                                           
 tax expense               (3,125)       (4,917)       (4,410)      (12,798)
Deferred income tax                                                         
 reduction                  8,409         4,603         3,912          (184)
Change in accounting                                                        
 estimate - deferred                                                        
 taxes                          -             -             -       (57,865)
----------------------------------------------------------------------------
Segment profit /                                                            
 (loss)(2)                 10,623        42,974         8,161        12,470 
----------------------------------------------------------------------------
Daily natural gas                                                           
 sales (Mcf/d)            105,474       167,698       112,926       173,450 
Daily oil and                                                               
 condensate sales                                                           
 (bbls/d) (1)               1,289         1,889         1,219         1,854 
Operating costs                                                             
 ($/Mcfe)                   $0.68         $0.48         $0.61         $0.43 
Depletion rate                                                              
 ($/Mcfe)                   $3.33         $1.47         $3.30         $1.53 
----------------------------------------------------------------------------
(1) Production that is in inventory has not been included in the revenue or 
cost amounts indicated.                                                     
(2) Production (2) Segment profit / (loss) is a non-IFRS measure as         
calculated above.                                                           

Segment profit from India includes the results from the Dhirubhai 1 and 3 natural gas fields and the MA crude oil field in the D6 Block, the Hazira crude oil and natural gas field and the Surat gas field.

Revenue and Royalties

The Company's natural gas production for the quarter and year-to-date was 105 MMcf/d and 113 MMcf/d, respectively, compared to 168 MMcf/d and 173 MMcf/d respectively in the prior year's periods. The reduction in production was primarily due to natural declines and greater than anticipated water production at the D6 Block. Declines are expected to continue unless production volumes are added from new fields in the D6 Block.

Crude oil production decreased due to a reduction in reservoir pressure associated with production from the MA field in the D6 Block. The realized prices were $102/bbl and $100/bbl in the quarter and year-to-date, respectively, compared to $109/bbl and $111/bbl in the prior year's periods. Decreased production and sales price contributed to the decrease in crude oil and condensate revenue.

The decrease in royalties is a result of the decreased revenues described above. Royalties applicable to production from the D6 Block are five percent for the first seven years of commercial production and gas royalties applicable to the Hazira Field and Surat Block are currently 10 percent of the sales price.

Profit Petroleum

Pursuant to the terms of the PSCs the Government of India is entitled to a sliding scale share in the profits once the Company has recovered its investment. Profits are defined as revenue less royalties, operating expenses and capital expenditures. An additional $6 million of profit petroleum expense for the Hazira Field was recognized and reduced crude oil and natural gas revenue in the period. The adjustment, related to crude oil and natural gas revenues earned in prior years, was the result of a court ruling finding that the 36-inch natural gas pipeline that Niko and GSPC constructed to connect the Hazira Field to the local industrial area was not eligible for cost recovery.

For the D6 Block, the Company is able to use up to 90 percent of revenue to recover costs. The Government of India was entitled to 10 percent of the profits not used to recover costs during the year. Profit petroleum expense will continue at this level until the Company has recovered its costs.

The Government of India was entitled to 25 percent and 20 percent of the profits from the Hazira Field and the Surat Block, respectively.

Production and Operating Expenses

Operating costs at the D6 Block decreased as less maintenance was conducted during the periods compared to the prior year's periods.

Depletion Expense

The depletion rate increased by $1.77/Mcfe on a year to date basis as a result of the revision to the reserve volumes and future costs included in the March 31, 2012 reserve report. The effect of the increased depletion rate on the depletion expense was partially offset by decreased production.

Income Taxes

There was a current income tax recovery as a result of the adjustment to profit petroleum described above, which is deductible for tax purposes.

Minimum alternate tax expense is calculated on accounting income from the D6 Block. Higher depletion rates reduced accounting income and minimum alternate tax expense.

Contingencies

The Company has contingencies related to natural gas sales contracts and the profit petroleum calculation for the Hazira Field and related to income taxes for the Hazira Field and the Surat Block as at September 30, 2012. Refer to note 14(c) to the consolidated financial statements for six months ended September 30, 2012 for a complete discussion of these contingencies.


Bangladesh                                                                  
                                                                            
----------------------------------------------------------------------------
                    Three months ended Sept 30,   Six months ended Sept. 30 
(thousands of U.S.                                                          
 dollars)                    2012          2011          2012          2011 
----------------------------------------------------------------------------
Natural gas revenue        12,436        12,705        25,142        24,322 
Condensate revenue          1,856         2,004         3,785         3,964 
Profit petroleum           (4,836)       (4,979)       (9,792)       (9,577)
Production and                                                              
 operating expenses        (2,641)       (1,625)       (4,649)       (3,721)
Depletion and                                                               
 depreciation                                                               
 expense                   (3,715)       (3,064)       (7,509)       (5,922)
Exploration and                                                             
 evaluation expenses            -          (133)         (180)         (392)
----------------------------------------------------------------------------
Segment profit /                                                            
 (loss)(1)                  3,100         4,908         6,797         8,674 
----------------------------------------------------------------------------
Daily natural gas                                                           
 sales (Mcf/d)             58,341        60,129        59,295        57,712 
Daily condensate                                                            
 sales (bbls/d)               187           191           189           186 
Operating costs                                                             
 ($/Mcfe)                   $0.43         $0.25         $0.39         $0.35 
Depletion rate                                                              
 ($/Mcfe)                   $0.68         $0.54         $0.68         $0.54 
----------------------------------------------------------------------------
(1) Segment profit is a non-IFRS measure as calculated above.               

Revenue, Profit Petroleum, Depletion and Operating Expenses

The natural gas price was consistent during the periods at $2.32/Mcf.

Pursuant to the terms of the PSC for Block 9, the Government of Bangladesh was entitled to 61 percent of profit gas in the year and prior year, which equates to 34 percent of revenues while the Company is recovering historical capital costs. Overall, profit petroleum expense increased due to increased revenues from Block 9.

Production and operating expense increased due to the higher level of maintenance activity during the period.

Depletion expense increased on a unit-of-production basis as a result of the addition of a dew-point control unit.

Contingencies

The Company has contingencies related to various claims filed against it with respect to the Feni property in Bangladesh as at September 30, 2012. Refer to note 14 to the consolidated financial statements for the six months ended September 30, 2012 for a complete discussion of these contingencies.


Indonesia, Kurdistan and Trinidad and Tobago                                
                                                                            
----------------------------------------------------------------------------
(thousands of U.S.    Exploration and evaluation                            
 dollars)                                expense            Asset impairment
                   ---------------------------------------------------------
                                              Six months ended September 30,
                   ---------------------------------------------------------
                             2012           2011          2012          2011
----------------------------------------------------------------------------
Indonesia                 (48,426)       (27,431)            -             -
Kurdistan                  (2,185)        (1,599)      (38,919)            -
Trinidad                  (36,052)       (26,314)            -             -
----------------------------------------------------------------------------

Indonesia, Kurdistan and Trinidad and Tobago                                
                                                                            
----------------------------------------------------------------------------
(thousands of U.S.        Income tax   Depreciation and                     
 dollars)                   recovery              other      Segment Profit 
                   ---------------------------------------------------------
                                             Six months ended September 30, 
                   ---------------------------------------------------------
                        2012    2011     2012      2011      2012      2011 
----------------------------------------------------------------------------
Indonesia             21,058       -      207       (56)  (27,161)  (27,487)
Kurdistan                  -       -        -       (12)  (41,104)   (1,611)
Trinidad                   -       -      (47)      (40)  (36,099)  (26,354)
----------------------------------------------------------------------------

Indonesia

Costs of $24 million related to the unsuccessful Candralila-1 and Ratnadewi-1 wells in the Lhokseumawe block and $3 million related to unsuccessful Lebah-1 well in the North Ganal block were expensed in the period, costs totaling $10 million relating to seismic and other exploration projects totaling were incurred for various blocks, $3 million was spent on new ventures and $5 million was incurred to operate the branch office. The prior year expense relates primarily to seismic exploration programs.

Kurdistan

The Company recognized an asset impairment of $39 million when it reassessed the recoverable amount of the Qara Dagh Block exploration and evaluation asset.

Trinidad and Tobago

Costs of $20 million related to the unsuccessful Shadow-1 well in Block 2AB were expensed in the period. Exploration and evaluation costs expensed directly to income include $7 million of seismic costs and $6 million payments that are specified in the various PSCs.


Corporate                                                                   
                                                                            
----------------------------------------------------------------------------
                       Three months ended Sept 30, Six months ended Sept 30,
(thousands of U.S.                                                          
 dollars)                       2012          2011         2012         2011
----------------------------------------------------------------------------
Share-based                                                                 
 compensation                  3,342        20,424        6,902       26,620
Finance expense                8,853         8,004       17,176       15,741
Foreign exchange loss /                                                     
 (gain)                       (3,824)        7,181          968        7,243
Loss on short-term                                                          
 investments                      32         9,783          276        8,568
----------------------------------------------------------------------------

Share-based compensation

The fair value per stock option granted decreased in the periods due to decreased stock price in the period.


Finance expense                                                             
                                                                            
----------------------------------------------------------------------------
                       Three months ended Sept 30, Six months ended Sept 30,
(thousands of U.S.                                                          
 dollars)                       2012          2011         2012         2011
----------------------------------------------------------------------------
Interest expense               6,007         5,346       12,269       10,873
Accretion expense              2,162         1,951        4,158        3,741
Other                            684           707          749        1,127
----------------------------------------------------------------------------
Finance expense                8,853         8,004       17,176       15,741
----------------------------------------------------------------------------

Interest expense increased as a result of the outstanding loan balance incurred in connection with the credit agreement with no corresponding borrowings attributable to a credit facility in the prior year's quarter. Accretion expense is on convertible debentures and decommissioning obligations. The recorded liability for the convertible debenture increases as time progresses to the maturity date resulting in a higher accretion expense than in the prior period.


Foreign Exchange                                                            
                                                                            
----------------------------------------------------------------------------
                      Three months ended Sept 30,  Six months ended Sept 30,
(thousands of U.S.                                                          
 dollars)                      2012          2011         2012          2011
----------------------------------------------------------------------------
Realized foreign                                                            
 exchange (gain) /                                                          
 loss                         2,826         3,217        2,482         3,368
Unrealized foreign                                                          
 exchange loss /                                                            
 (gain)                      (6,650)        3,964       (1,514)        3,875
----------------------------------------------------------------------------
Total foreign exchange                                                      
 loss / (gain)               (3,824)        7,181          968         7,243
----------------------------------------------------------------------------

The realized foreign exchange losses and gains arise primarily because of the difference between the Indian rupee and U.S. dollar exchange rate at the time of recording individual accounts receivable and accounts payable compared to the exchange rate at the time of receipt of funds to settle recorded accounts receivable and payment to settle recorded accounts payable.

The unrealized foreign exchange gain in the year arose primarily on the revaluing of the Indian-rupee denominated income tax receivable and site restoration deposit to U.S. dollars and the strengthening of the Indian-rupee versus the U.S. dollar.

There were additional foreign exchange gains in the period on U.S. dollar cash held by the parent whose functional currency is the Canadian dollar. An offsetting entry increases the accumulated other comprehensive income but does not flow through the income statement.

Short-Term Investments

The loss on short-term investments for the year was a result of marking the short-term investments to market value.

Netbacks

The following tables outline operating, funds from operations and earnings netbacks (all of which are non-IFRS measures):


----------------------------------------------------------------------------
                            Three months ended           Three months ended 
                                 Sept 30, 2012                Sept 30, 2011 
($/Mcfe)             India Bangladesh    Total    India Bangladesh    Total 
----------------------------------------------------------------------------
Oil and natural                                                             
 gas revenue          5.01       2.61     4.19     5.00       2.61     4.39 
Royalties            (0.25)         -    (0.16)   (0.25)         -    (0.19)
Profit petroleum     (0.10)     (0.88)   (0.37)   (0.08)     (0.88)   (0.28)
Production and                                                              
 operating expense   (0.68)     (0.43)   (0.61)   (0.48)     (0.25)   (0.43)
----------------------------------------------------------------------------
Operating netback     3.98       1.30     3.05     4.19       1.48     3.49 
----------------------------------------------------------------------------
G&A                                      (0.14)                       (0.08)
Other Income                              0.02                            - 
Net finance                                                                 
 expense                                 (0.56)                       (0.37)
Current income tax                                                          
 expense                                 (0.02)                       (0.05)
Minimum alternate                                                           
 tax                                     (0.20)                       (0.22)
----------------------------------------------------------------------------
Funds from                                                                  
 operations                                                                 
 netback                                  2.15                         2.77 
----------------------------------------------------------------------------
Production and                                                              
 operating                                                                  
 expenses                                (0.02)                           - 
Exploration and                                                             
 evaluation costs                        (3.33)                       (2.04)
Other expense                            (0.20)                       (0.92)
Loss on short-term                                                          
 investment                                  -                        (0.44)
Deferred income                                                             
 tax reduction                            1.79                         0.21 
Net finance gain /                                                          
 (expense)                                0.28                        (0.29)
Depletion and                                                               
 depreciation                                                               
 expense                                 (2.47)                       (1.25)
----------------------------------------------------------------------------
Earnings netback                         (1.80)                       (1.96)
----------------------------------------------------------------------------

Netbacks for India, Bangladesh and in total are calculated by dividing the revenue and costs for each country and in total by the total sales volume for each country and in total measured in Mcfe.


----------------------------------------------------------------------------
                              Six months ended             Six months ended 
                                 Sept 30, 2012                Sept 30, 2011 
($/Mcfe)             India Bangladesh    Total    India Bangladesh    Total 
----------------------------------------------------------------------------
Oil and natural                                                             
 gas revenue          4.89       2.62     4.13     4.97       2.63     4.41 
Royalties            (0.25)         -    (0.16)   (0.25)         -    (0.19)
Profit petroleum     (0.38)     (0.89)   (0.55)   (0.10)     (0.89)   (0.29)
Production and                                                              
 operating expense   (0.61)     (0.39)   (0.53)   (0.43)     (0.35)   (0.41)
----------------------------------------------------------------------------
Operating netback     3.65       1.34     2.89     4.19       1.39     3.52 
----------------------------------------------------------------------------
G&A                                      (0.13)                       (0.09)
Other Income                              0.01                            - 
Net finance                                                                 
 expense                                 (0.44)                       (0.32)
Current income tax                                                          
 reduction /                                                                
 (expense)                                0.06                        (0.10)
Minimum alternate                                                           
 tax                                     (0.13)                       (0.29)
----------------------------------------------------------------------------
Funds from                                                                  
 operations                                                                 
 netback                                  2.26                         2.72 
----------------------------------------------------------------------------
Production and                                                              
 operating                                                                  
 expenses                                (0.02)                           - 
Exploration and                                                             
 evaluation costs                        (2.70)                       (1.33)
Other Expense                            (1.39)                       (0.60)
Loss on short-term                                                          
 investment                              (0.01)                       (0.19)
Deferred income                                                             
 tax reduction                            0.75                            - 
Change in                                                                   
 accounting                                                                 
 estimate -                                                                 
 deferred taxes                              -                        (1.30)
Net finance                                                                 
 expense                                 (0.08)                       (0.20)
Depletion and                                                               
 depreciation                                                               
 expense                                 (2.47)                       (1.32)
----------------------------------------------------------------------------
Earnings netback                         (3.66)                       (2.22)
----------------------------------------------------------------------------

Netbacks for India, Bangladesh and in total are calculated by dividing the revenue and costs for each country and in total by the total sales volume for each country and in total measured in Mcfe.

RELATED PARTIES

The Company has a 45 percent interest in a Canadian property that is operated by a related party, a Company owned by the President and CEO of the Company. This joint interest originated as a result of the related party buying the interest of the third-party operator of the property in 2002. The transactions with the related party are not significant to operations or consolidated financial statements. The transactions with the related party are measured at the exchange amount, which is the amount agreed to between related parties.

FINANCIAL INSTRUMENTS

The Company's financial instruments consist of short-term investments, accounts receivable, long-term accounts receivable, accounts payable and accrued liabilities, borrowings and convertible debentures.

The Company is exposed to fluctuations in the value of cash, accounts receivable, short-term investments, accounts payable and accrued liabilities due to changes in foreign exchange rates as these financial instruments are partially or wholly denominated in Canadian dollars and the local currencies of the countries in which it operate. The Company manages the risk by converting cash held in foreign currencies to U.S. dollars as required to fund forecasted expenditures. The Company is exposed to changes in foreign exchange rates as the future interest and principal amounts on the convertible debentures are in Canadian dollars.

The Company is exposed to changes in the market value of the short-term investments.

The Company is exposed to credit risk with respect to all of its financial instruments if a customer or counterparty fails to meet its contractual obligations. The Company has deposited cash and restricted cash with reputable financial institutions, for which management believes the risk of loss to be remote. The Company takes measures in order to mitigate any risk of loss with respect to the accounts receivable, which may include obtaining guarantees.

The Company is exposed to the risk of changes in market prices of commodities. The Company enters into physical commodity contracts for the sale of natural gas, which partially mitigates this risk. The Company does so in the normal course of business by entering into contracts with fixed natural gas prices. The contracts are not classified as financial instruments because the Company expects to deliver all required volumes under the contracts. No amounts are recognized in the consolidated financial statements related to the contracts until such time as the associated volumes are delivered. The Company is exposed to the changes in the Brent crude price as the average Brent crude price from the preceding year (to a defined maximum) is a variable in the natural gas price for the current year, calculated annually, for the D6 Block natural gas contracts.

The fair values of accounts receivable, accounts payable and accrued liabilities approximate their carrying values due to their short periods to maturity. The fair value of the short-term investments is based on publicly quoted market values.

The debt component of the convertible debentures has been recorded net of the fair value of the conversion feature. The fair value of the conversion feature of the debentures included in shareholders' equity at the date of issue was $15 million. The fair value of the conversion feature of the debentures was determined based on the discounted future payments using a discount rate of a similar financial instrument without a conversion feature compared to the fixed rate of interest on the debentures. Interest and financing expense of $5 million and $10 million for the three and six months ended September 30, 2012 were recorded for interest expense and accretion of the discount on the convertible debentures.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2012, the Company had unrestricted cash of $98 million and a working capital deficit (current assets less current liabilities) of $283 million. The deficit includes $314 million related to convertible debentures that mature on December 30, 2012.

On December 30, 2009, the Company entered into Cdn$310 million of convertible debentures. The debentures bear interest at a rate of five percent and mature on December 30, 2012. Interest is paid semi-annually in arrears on January 1st and July 1st of each year. The debentures are convertible at the option of the holder into common shares at a conversion price of Cdn$110.50 per common share until 60 days prior to the maturity date. In May 2011, the terms of the debentures were altered such that the Company may elect to convert all or a portion of the debentures at maturity into common shares at a six percent discount to the weighted average trading price for the 20 trading days prior to the maturity date. The Company continues to pursue its options for the repayment of the convertible debentures and expects resolution well in advance of maturity. The Company is working with the primary holder of the debentures regarding the amount and timing of a prepayment at par plus accrued interest, utilizing cash on hand and advances under its credit facility.

In January 2012, the Company entered into a three-year facility agreement for a $225 million revolving credit facility and a $25 million operating facility for general corporate purposes. The maximum available credit under this agreement is subject to review based on, among other things, updates to the Company's reserves. On September 18, 2012, the Company received notice from the syndicate of lenders of the redetermination of the borrowing base of the facility which resulted in a reduction of the Company's credit availability under the facility to an aggregate of $100 million. The Company has borrowed $41 million against this facility as of September 30, 2012.

In September 2012, Niko's board of directors decided to suspend the Company's quarterly dividend in connection with the commencement of the Company's significant exploration drilling program. The timing and level of future dividends, if any, will be reviewed periodically by the board of directors.

The Company's guidance on its capital program for the year ended March 31, 2013, net of proceeds of negotiated farm-outs and other arrangements, has been revised from $210 million to $170 million, due primarily to deferrals of development spending. In addition, Niko has funded and will continue to fund certain drilling inventory and other costs related to its drilling program in future years. Total spending for the year is expected to be approximately $205 million.

The Company is currently in negotiations with various third parties regarding farm-outs and other arrangements that have the potential to provide additional proceeds of $135 million during the year ended March 31, 2013 and is in preliminary discussions with additional third parties regarding the farm-out or sale of further assets.

The Company has a number of contingencies as at September 30, 2012 that could significantly impact liquidity. Refer to note 14 to the consolidated financial statements for the six months ended September 30, 2012 for a complete discussion of these contingencies.

SUMMARY OF QUARTERLY RESULTS

The following tables set forth selected financial information, in thousands of U.S. dollars unless otherwise indicated, for the eight most recently completed quarters to September 30, 2012:


----------------------------------------------------------------------------
                         Dec. 31,      Mar. 31,     June. 30,     Sept. 30, 
Three months ended           2011          2012          2012          2012 
----------------------------------------------------------------------------
Oil and natural gas                                                         
 revenue (1)               74,789        71,434        55,099        58,080 
Net income (loss)         (40,405)     (183,324)      (92,121)      (28,573)
Per share                                                                   
 Basic ($)                  (0.78)        (3.55)        (1.78)        (0.55)
 Diluted ($)                (0.78)        (3.55)        (1.78)        (0.55)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                           Dec. 31,     Mar. 31,    June. 30,     Sept. 30, 
Three months ended             2010         2011         2011          2011 
----------------------------------------------------------------------------
Oil and natural gas                                                         
 revenue (1)                 99,220       94,168       88,277        86,810 
Net income (loss)            25,806        6,234      (54,983)      (43,916)
Per share                                                                   
 Basic ($)                     0.50         0.12        (1.07)        (0.85)
 Diluted ($)                   0.50         0.12        (1.07)        (0.85)
----------------------------------------------------------------------------
(1) Oil and natural gas revenue is oil and natural gas sales less royalties 
and profit petroleum expense.                                               

Net income in the quarters was affected by:


--  D6 gas production declined over the quarters due to well performance. 
--  The Company's short-term investments are valued at fair value, which is
    the quoted market price. Gains and losses are recognized throughout the
    quarters based on fluctuations in the market prices. 
--  The Company expensed a portion of the exploration and evaluation costs
    during the quarters and the level of activity varies over the periods. 
--  The Company impaired assets of $133 million and long term receivables of
    $23 million in the quarter ended March 31, 2012 and assets of $39
    million in the quarter ended June 30, 2012. 
--  For the quarter ended June 30, 2011, there was a change in accounting
    estimate related to deferred income tax expense. There was a revision in
    the method of estimating the amount of taxable temporary differences
    reversing during the tax holiday period. 
--  For the quarter ended September 30, 2011, there was a $14 million
    expense upon cancellation of stock options to recognize the remainder of
    the expense associated with the options. 
--  Depletion expense increased in the quarter ended March 31, 2011 and
    again in the quarter ended March 31, 2012 as a result of revisions to
    the reserves and estimated future costs to develop the reserves. 
--  In the quarter ended March 31, 2011, $9.7 million fine was recorded
    related to the Company's guilty plea to one count of bribery under the
    Corruption of Foreign Public Officials Act relating to two specific
    instances that occurred in 2005. 
--  There was a deferred income tax recovery in the quarter ended March 31,
    2012 related to the revision to the reserve estimate, which increased
    the value of the tax holiday for the D6 Block and there were deferred
    income tax recoveries related to spending in Indonesia and Trinidad
    applied against the deferred income tax liabilities recorded upon the
    acquisitions of Voyager Energy Ltd. and Black Gold Energy LLC. 
--  An additional $6 million of profit petroleum expense for the Hazira
    Field reduced oil and natural gas revenue in the year-to-date. The
    adjustment to profit petroleum expense was the result of a court ruling
    finding that the 36-inch natural gas sales pipeline that Niko and GSPC
    constructed to connect the Hazira Field to the local industrial area was
    not eligible for cost recovery. 
--  Deferred tax recovery for the quarter increased by $22 million, due to a
    reduction in deferred tax liabilities resulting from a reduction in
    exploration and evaluation assets related to proceeds from a farm out
    and from a former partner in exchange for assuming the partner's
    obligation for future drilling commitments. 

CRITICAL ACCOUNTING ESTIMATES

The Company makes assumptions in applying certain critical accounting estimates that are uncertain at the time the accounting estimate is made and may have a significant effect on the consolidated financial statements of the Company.

The critical accounting estimates include oil and natural gas reserves, depletion, depreciation and amortization expense, asset impairment, decommissioning obligations, the amount and likelihood of contingent liabilities and income taxes. The critical accounting estimates are based on variable inputs including:


--  estimation of recoverable oil and natural gas reserves and future cash
    flows from the reserves; 
--  geological interpretations, exploration activities and success or
    failure, and the Company's plans with respect to the property and
    financial ability to hold the property; 
--  risk-free interest rates; 
--  estimation of future abandonment costs; 
--  facts and circumstances supporting the likelihood and amount of
    contingent liabilities; and 
--  interpretation of income tax laws. 

A change in a critical accounting estimate can have a significant effect on net earnings as a result of their impact on the depletion rate, decommissioning obligations, asset impairments, losses and income taxes. A change in a critical accounting estimate can have a significant effect on the value of property, plant and equipment, decommissioning obligations and accounts payable.

For a complete discussion of the critical accounting estimates, please refer to the MD&A for the Company's fiscal year ended March 31, 2012, available at www.sedar.com.

ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED

The International Accounting Standards Board (IASB) has issued IFRS 9 "Financial Instruments" to replace IAS 39 "Financial Instruments: Recognition and Measurement". The new standard replaces the multiple classification and measurement models for financial assets and liabilities with a new model that has only two categories: amortized cost and fair value through profit and loss. Under IFRS 9, fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. The Company is assessing the impact of the new standard on its consolidated financial statements.

In May 2011, the IASB issued or amended a number of standards that will be effective for annual periods beginning on or after January 1, 2013.

Three new standards are IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosure of Interests in Other Entities". IFRS 10 establishes a single control model that applies to all entities and will require management to exercise judgment to determine which entities are controlled and need to be consolidated by the parent. The Company will continue to consolidate all of its wholly-owned subsidiaries and are currently assessing the accounting impact of its investments in other companies. IFRS 11 replaces IAS 31 "Interest in Joint Ventures" and SIC-13 "Jointly-controlled Entities - Non-monetary Contributions by Venturers". IFRS 11 identifies two forms of joint ventures when there is joint control: joint operations and joint ventures. Joint operations are accounted for using proportionate consolidation and joint ventures are accounted for using the equity method. IFRS 11 focuses on the nature of the rights and obligations associated with the joint arrangements and the Company is currently evaluating the effect of this standard on its joint arrangements. IFRS 12 introduces a number of new disclosures related to consolidated financial statements and interests in subsidiaries, joint arrangements, associates and structured entities.

As a result of the new standards described above, the IASB has amended IAS 28 "Investments in Associates and Joint Ventures" to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

The IASB published IFRS 13 "Fair Value Measurement" which provides a precise definition of fair value and a single source of fair value measurement disclosures requirements for use across IFRSs.

The IASB issued amendments to IAS 1 Presentation of Financial Statements requiring companies preparing financial statements in accordance with IFRS to group together items within other comprehensive income (OCI) that may be reclassified to the profit or loss section of the income statement. The amendments apply to annual periods beginning on or after July 1, 2012.

The IASB reissued IAS 27 "Separate Financial Statements" to focus solely on accounting and disclosure requirements when an entity presents separate financial statements that are not consolidated financial statements.

The Company is currently assessing the disclosure impact of the standards listed above on its consolidated financial statements.

DISCLOSURE CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer are responsible for designing disclosure controls and procedures or causing them to be designed under their supervision and evaluating the effectiveness of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial Officer oversee the design and evaluation process and have concluded that the design and operation of these disclosure controls and procedures were effective in ensuring material information required to be disclosed in quarterly filings or other reports filed or submitted under applicable Canadian securities laws is made known to management on a timely basis to allow decisions regarding required disclosure.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Company's Chief Executive Officer and Chief Financial Officer are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision and evaluating the effectiveness of internal controls over financial reporting. The Company's Chief Executive Officer and Chief Financial Officer have overseen the design and evaluation of internal controls over financial reporting and have concluded that the design and operation of these internal controls over financial reporting were effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There were no changes in internal controls over financial reporting during the period ended September 30, 2012. In August 2011, the Company hired a dedicated employee to function as the Chief Compliance Officer and perform the duties previously fulfilled by an existing officer. The Chief Compliance Officer reports to the Audit Committee.

RISK FACTORS

In the normal course of business the Company is exposed to a variety of actual and potential events, uncertainties, trends and risks. In addition to the risks associated with the use of assumptions in the critical accounting estimates, financial instruments, the Company's commitments and actual and expected operating events, all of which are discussed above, the Company has identified the following events, uncertainties, trends and risks that could have material adverse impact:


--  The Company may not be able to find reserves at a reasonable cost,
    develop reserves within required time-frames or at a reasonable cost, or
    sell these reserves for a reasonable profit; 
--  Reserves may be revised due to economic and technical factors; 
--  The Company may not be able to obtain approval, or obtain approval on a
    timely basis for exploration and development activities; 
--  Changing governmental policies, social instability and other political,
    economic or diplomatic developments in the countries in which the
    Company operates; 
--  Changing taxation policies, taxation laws and interpretations thereof; 
--  Adverse factors including climate and geographical conditions, weather
    conditions and labour disputes; 
--  Changes in foreign exchange rates that impact the Company's non-U.S.
    dollar transactions; and 
--  Changes in future oil and natural gas prices. 

For a comprehensive discussion of all identified risks, refer to the Company's Annual Information Form, which can be found at www.sedar.com.

The Company has a number of contingencies as at September 30, 2012. Refer to the notes to the Company's consolidated financial statements for a complete list of the contingencies and any potential effects on the Company.

OUTSTANDING SHARE DATA

At November 13, 2012, the Company had the following outstanding shares:


----------------------------------------------------------------------------
                                                  Number     Cdn$ Amount (1)
----------------------------------------------------------------------------
Common shares                                 51,641,845       1,325,403,000
Preferred shares                                     Nil                 Nil
Stock options                                  3,847,003                   -
----------------------------------------------------------------------------
(1) This is the dollar amount received for common shares issued excluding   
share issue costs and is presented in Canadian dollars. The U.S. dollar     
equivalent at November 13, 2012 is $1,171,439,000.                          

ABBREVIATIONS


Bcfe    billion cubic feet equivalent                                       
Bbl     barrel                                                              
CEO     Chief Executive Officer                                             
CICA    Canadian Institute of Chartered Accountants                         
FPSO    floating production, storage and off-loading vessel                 
GPSA    gas purchase and sale agreement                                     
GSPC    Gujarat State Petroleum Corporation Ltd.                            
GOB     Government of Bangladesh                                            
GOI     Government of India                                                 
GRI     Government of the Republic of Indonesia                             
GTT     Government of Trinidad and Tobago                                   
IASB    International Accounting Standards Board                            
IFRS    International Financial Reporting Standards                         
Mcf     thousand cubic feet                                                 
Mcfe    thousand cubic feet equivalent                                      
MD&A    management's discussion and analysis                                
MMBtu   million British thermal units                                       
MMcfe   million cubic feet equivalent                                       
MMcf    million cubic feet                                                  
PSC     production sharing contract                                         
/d      per day                                                             
                                                                            
All amounts are in thousands of U.S. dollars unless otherwise stated.       
All thousand cubic feet equivalent (Mcfe) figures are based on the ratio of 
1bbl:6Mcf.                                                                  
                                                                            
                                                                            
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION             
                                                                            
----------------------------------------------------------------------------
(unaudited) (thousands of U.S.                                              
 dollars)                          As at Sept 30, 2012   As at Mar 31, 2012 
----------------------------------------------------------------------------
Assets                                                                      
Current assets                                                              
 Cash and cash equivalents                      98,060               64,495 
 Restricted cash                                 3,337                6,790 
 Accounts receivable (note 3)                   71,389               61,247 
 Short-term investment                             475                  748 
 Inventories                                    11,155                9,961 
----------------------------------------------------------------------------
                                               184,416              143,241 
----------------------------------------------------------------------------
Restricted cash                                 14,329               11,283 
Long-term accounts receivable                    1,360                2,202 
Long-term investment                             2,796                2,752 
Exploration and evaluation assets                                           
 (notes 4, 13)                                 818,417              856,880 
Property, plant and equipment                                               
 (note 5, 13)                                  438,191              509,091 
Income tax receivable (note 14e)                27,552               34,724 
Deferred tax asset                              62,226               58,314 
----------------------------------------------------------------------------
                                             1,549,287            1,618,487 
----------------------------------------------------------------------------
Liabilities                                                                 
Current liabilities                                                         
 Accounts payable and accrued                                               
  liabilities                                  148,004              101,660 
 Current tax payable                             1,301                1,220 
 Finance lease obligation                        4,804                4,804 
 Convertible debentures(note 6)                313,661              306,052 
----------------------------------------------------------------------------
                                               467,770              413,736 
----------------------------------------------------------------------------
Decommissioning obligation                      41,203               40,017 
Finance lease obligation                        41,038               43,671 
Borrowings                                      41,000               25,000 
Deferred tax liabilities                       174,455              195,515 
----------------------------------------------------------------------------
                                               765,466              717,939 
----------------------------------------------------------------------------
Shareholders' Equity                                                        
Share capital (note 7)                       1,171,439            1,171,439 
Contributed surplus                            116,433              104,964 
Equity component of convertible                                             
 debentures                                     14,765               14,765 
Currency translation reserve                    (6,577)              (2,094)
Deficit                                       (512,239)            (388,526)
----------------------------------------------------------------------------
                                               783,821              900,548 
----------------------------------------------------------------------------
                                             1,549,287            1,618,487 
----------------------------------------------------------------------------
                                                                            
The accompanying notes are an integral part of these financial statements.  
                                                                            
                                                                            
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)    
                                                                            
----------------------------------------------------------------------------
(unaudited)         Three months ended Sept 30,   Six months ended Sept 30, 
(thousands of U.S.                                                          
 dollars, except per                                                        
 share amounts)              2012          2011          2012          2011 
----------------------------------------------------------------------------
                                                                            
Oil and natural gas                                                         
 revenue (note 8)          58,080        86,810       113,179       175,088 
Production and                                                              
 operating expenses       (10,026)       (9,550)      (18,211)      (19,105)
Depletion and                                                               
 depreciation                                                               
 expense (note 5)         (39,204)      (27,778)      (81,616)      (58,969)
Exploration and                                                             
 evaluation expenses                                                        
 (note 9)                 (52,879)      (45,117)      (89,300)      (59,270)
Loss on short-term                                                          
 investments                  (32)       (9,783)         (276)       (8,568)
Asset (impairment) /                                                        
 recovery (note 4)            181             -       (38,919)            - 
Other income                                                                
 (expenses)                   311             -           311            78 
Share-based                                                                 
 compensation                                                               
 expense (note 7)          (3,342)      (20,424)       (6,902)      (26,620)
General and                                                                 
 administrative                                                             
 expenses (note 10)        (2,266)       (1,857)       (4,323)       (4,015)
----------------------------------------------------------------------------
                          (49,177)      (27,699)     (126,057)       (1,381)
----------------------------------------------------------------------------
                                                                            
Finance income                610           465           853           602 
Finance expense                                                             
 (note 11)                 (8,853)       (8,004)      (17,176)      (15,741)
Foreign exchange                                                            
 gain (loss)                3,824        (7,181)         (968)       (7,243)
----------------------------------------------------------------------------
Net finance expense        (4,419)      (14,720)      (17,291)      (22,382)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Loss before income                                                          
 tax                      (53,596)      (42,419)     (143,348)      (23,763)
----------------------------------------------------------------------------
                                                                            
Current income tax                                                          
 reduction /                                                                
 (expense)                   (285)       (1,183)        2,091        (4,290)
Minimum alternate                                                           
 tax expense               (3,125)       (4,917)       (4,410)      (12,797)
Deferred income tax                                                         
 reduction /                                                                
 (expense)                 28,433         4,603        24,971       (58,049)
----------------------------------------------------------------------------
Income tax (expense)       25,023        (1,497)       22,652       (75,136)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net loss                  (28,573)      (43,916)     (120,696)      (98,899)
----------------------------------------------------------------------------
                                                                            
Foreign currency                                                            
 translation gain /                                                         
 (loss)                    (9,635)       15,549        (4,483)       14,432 
----------------------------------------------------------------------------
Comprehensive loss                                                          
 for the period           (38,208)      (28,367)     (125,179)      (84,467)
----------------------------------------------------------------------------
                                                                            
Loss per share:                                                             
 (note 12)                                                                  
 Basic                    $ (0.55)      $ (0.85)      $ (2.34)      $ (1.92)
 Diluted                  $ (0.55)      $ (0.85)      $ (2.34)      $ (1.92)
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.  
                                                                            
                                                                            
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                                            
----------------------------------------------------------------------------
(unaudited)                                                                 
 (thousands of U.S.                                                         
 dollars, except                                                   Currency 
 number of common    Common shares                Contributed   translation 
 shares)                        (#)Share capital      surplus       reserve 
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2011                   51,526,901     1,162,319       63,037        (8,344)
Options exercised           74,070         6,408       (1,556)            - 
Share-based                                                                 
 compensation expense            -             -       31,337             - 
Net loss for the                                                            
 period                          -             -            -             - 
Payment of                                                                  
 dividends(1)                    -             -            -             - 
Foreign currency                                                            
 translation                     -             -            -        14,432 
----------------------------------------------------------------------------
Balance, September                                                          
 30, 2011               51,600,971     1,168,727       92,818         6,088 
----------------------------------------------------------------------------
Options exercised           40,874         2,712         (732)            - 
Share-based                                                                 
 compensation expense            -             -       12,878             - 
Net loss for the                                                            
 period                          -             -            -             - 
Payment of                                                                  
 dividends(1)                    -             -            -             - 
Foreign currency                                                            
 translation                     -             -            -        (8,182)
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2012                   51,641,845     1,171,439      104,964        (2,094)
----------------------------------------------------------------------------
Options exercised                -             -            -             - 
Share-based                                                                 
 compensation (note                                                         
 7)                              -             -       11,469             - 
Net loss for the                                                            
 period                          -             -            -             - 
Payment of                                                                  
 dividends(1)                    -             -            -             - 
Foreign currency                                                            
 translation                     -             -            -        (4,483)
----------------------------------------------------------------------------
Balance, September                                                          
 30, 2012               51,641,845     1,171,439      116,433        (6,577)
----------------------------------------------------------------------------

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'       
EQUITY                                                                      
                                                                            
----------------------------------------------------------------------------
(unaudited)                                                                 
 (thousands of U.S.                                                         
 dollars, except       Equity component                                     
 number of common        of convertible                                     
 shares)                     debentures           Deficit             Total 
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2011                            14,765           (53,392)        1,178,385 
Options exercised                     -                 -             4,852 
Share-based                                                                 
 compensation expense                 -                 -            31,337 
Net loss for the                                                            
 period                               -           (98,899)          (98,899)
Payment of                                                                  
 dividends(1)                         -            (6,391)           (6,391)
Foreign currency                                                            
 translation                          -                 -            14,432 
----------------------------------------------------------------------------
Balance, September                                                          
 30, 2011                        14,765          (158,682)        1,123,716 
----------------------------------------------------------------------------
Options exercised                     -                 -             1,980 
Share-based                                                                 
 compensation expense                 -                 -            12,878 
Net loss for the                                                            
 period                               -          (223,729)         (223,729)
Payment of                                                                  
 dividends(1)                         -            (6,115)           (6,115)
Foreign currency                                                            
 translation                          -                 -            (8,182)
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2012                            14,765          (388,526)          900,548 
----------------------------------------------------------------------------
Options exercised                     -                 -                 - 
Share-based                                                                 
 compensation (note                                                         
 7)                                   -                 -            11,469 
Net loss for the                                                            
 period                               -          (120,696)         (120,696)
Payment of                                                                  
 dividends(1)                         -            (3,017)           (3,017)
Foreign currency                                                            
 translation                          -                 -            (4,483)
----------------------------------------------------------------------------
Balance, September                                                          
 30, 2012                        14,765          (512,239)          783,821 
----------------------------------------------------------------------------
(1) The Company paid dividends of $0.12 per share in the six months ended   
September 30, 2011 and $0.06 per share in the six months ended September 30,
2012.                                                                       
                                                                            
                                                                            
The accompanying notes are an integral part of these financial statements.  
                                                                            
                                                                            
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASHFLOWS                      
                                                                            
----------------------------------------------------------------------------
(unaudited)         Three months ended Sept 30,   Six months ended Sept 30, 
(thousands of U.S.                                                          
 dollars)                    2012          2011          2012          2011 
----------------------------------------------------------------------------
                                                                            
Cash flows from                                                             
 operating                                                                  
 activities:                                                                
                                                                            
Net loss                  (28,573)      (43,916)     (120,696)      (98,899)
                                                                            
Adjustments for:                                                            
 Depletion and                                                              
  depreciation                                                              
  expense                  39,204        27,776        81,616        58,969 
 Accretion expense          2,162         1,951         4,158         3,741 
 Deferred income tax                                                        
  (reduction) /                                                             
  expense                 (28,433)       (4,603)      (24,972)       58,049 
 Unrealized foreign                                                         
  exchange loss /                                                           
  (gain)                   (6,650)        3,964        (1,514)        3,875 
 Loss on short-term                                                         
  investment                   32         9,783           276         8,568 
 Asset impairment            (181)          (69)       38,919           (69)
 Exploration and                                                            
  evaluation write-                                                         
  off                      37,015        43,191        49,482        56,046 
 Share-based                                                                
  compensation                                                              
  expense                   5,533        19,688        10,935        27,637 
Change in non-cash                                                          
 working capital           (1,333)       (3,557)        4,307        13,184 
Change in long-term                                                         
 accounts receivable       10,401        (2,249)        8,619        25,141 
----------------------------------------------------------------------------
Net cash from                                                               
 operating                                                                  
 activities                29,177        51,959        51,130       156,242 
----------------------------------------------------------------------------
                                                                            
Cash flows from                                                             
 investing                                                                  
 activities:                                                                
 Exploration and                                                            
  evaluation                                                                
  expenditures            (60,155)      (59,526)      (93,053)     (175,109)
 Property, plant and                                                        
  equipment                                                                 
  expenditures             (7,866)       (5,794)      (11,060)       (8,804)
 Proceeds from other                                                        
  arrangements (note                                                        
  4)                       36,000             -        36,000             - 
 Farm-out proceeds                                                          
  (note 4)                  9,203             -         9,203             - 
 Restricted cash                                                            
  contributions              (900)       (2,000)       (3,102)       (2,600)
 Release of                                                                 
  restricted cash           1,300             -         3,319         4,459 
 Disposition of                                                             
  investments                   -             -             -         1,106 
 Change in non-cash                                                         
  working capital          43,028        11,250        30,813         4,283 
----------------------------------------------------------------------------
Net cash used in                                                            
 investing                                                                  
 activities                20,610       (56,070)      (27,880)     (176,665)
----------------------------------------------------------------------------
                                                                            
Cash flows from                                                             
 financing                                                                  
 activities:                                                                
 Proceeds from                                                              
  issuance of share                                                         
  capital, net of                                                           
  issuance costs                -         4,743             -         4,852 
 Change in loans and                                                        
  borrowings                    -             -        16,000             - 
 Reduction in                                                               
  finance lease                                                             
  liability                (1,350)       (1,206)       (2,633)       (2,347)
 Dividends paid                 -        (3,166)       (3,017)       (6,391)
----------------------------------------------------------------------------
Net cash from                                                               
 financing                                                                  
 activities                (1,350)          371        10,350        (3,886)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Change in cash and                                                          
 cash equivalents          48,437        (3,740)       33,600       (24,309)
----------------------------------------------------------------------------
                                                                            
Effect of                                                                   
 translation on                                                             
 foreign currency                                                           
 cash                          36        (2,021)          (35)         (608)
Cash and cash                                                               
 equivalents,                                                               
 beginning of period       49,587        89,186        64,495       108,342 
----------------------------------------------------------------------------
Cash and cash                                                               
 equivalents, end of                                                        
 period                    98,060        83,425        98,060        83,425 
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.  

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

Niko Resources Ltd. (the "Company") is a limited company incorporated in Alberta, Canada. The addresses of its registered office and principal place of business is 4600, 400 - 3 Avenue SW, Calgary, AB, T2P4H2. The Company is engaged in the exploration for and development and production of oil and natural gas in the countries listed in note 13. The Company's common shares are traded on the Toronto Stock Exchange.

2. Basis of Presentation

The condensed interim consolidated financial statements include the accounts of Niko Resources Ltd. (the "Company") and all of its subsidiaries. The majority of the exploration, development and production activities of the Company are conducted jointly with others and, accordingly, these financial statements reflect only the Company's proportionate interest in such activities. The condensed interim consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards ("IFRS").

The interim consolidated financial statements have been prepared following the same accounting policies and methods of application as the audited consolidated financial statements for the fiscal year ended March 31, 2012. The disclosures provided herein are incremental to those included with the annual consolidated financial statements and the notes thereto for the year ended March 31, 2012. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended March 31, 2012.

The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand dollars ($000), except where otherwise indicated.

These financial statements were authorized for issue by the Board of Directors on November 13, 2012.

3. Accounts receivable


----------------------------------------------------------------------------
(thousands of U.S. dollars)                        As at               As at
                                           Sept 30, 2012      March 31, 2012
----------------------------------------------------------------------------
Oil and gas revenues receivable                   22,190              28,033
Receivable from joint venture partners            23,022              13,004
Advances to vendors                                3,593               1,751
Prepaid expenses and deposits                      5,302               4,816
VAT receivable                                    12,444               9,405
Other receivables                                  4,838               4,238
----------------------------------------------------------------------------
                                                  71,389              61,247
----------------------------------------------------------------------------

4. Exploration and evaluation assets


----------------------------------------------------------------------------
(thousands of U.S. dollars)            Six months ended          Year ended 
                                          Sept 30, 2012      March 31, 2012 
----------------------------------------------------------------------------
Opening balance                                 856,880             762,221 
Additions (note 13)                              93,705             164,976 
Transfers                                             -               5,354 
Expensed                                        (49,592)            (71,500)
Impairment                                      (38,384)                  - 
Disposals and other arrangements                (45,203)             (2,355)
Foreign currency translation                      1,011              (1,816)
----------------------------------------------------------------------------
Closing balance                                 818,417             856,880 
----------------------------------------------------------------------------

The Company expensed $50 million of exploration costs related to three unsuccessful exploration wells in Indonesia and one unsuccessful exploration well in Trinidad. The Company also estimated the recoverable amount of Kurdistan exploration and evaluation assets and recognized an impairment of $38 million. In addition, the Company recorded proceeds of a farm-out of $9 million and received $36 million from a former partner in exchange for assuming the partner's obligations for future drilling commitments.

5. Property, plant and equipment

a. Development assets


----------------------------------------------------------------------------
(thousands of U.S. dollars)             Six months ended         Year ended 
                                           Sept 30, 2012     March 31, 2012 
----------------------------------------------------------------------------
Opening balance                                   16,988             18,421 
Additions                                          2,971              7,447 
Expensed                                               -                  - 
Transfers to other asset categories                    -             (8,880)
----------------------------------------------------------------------------
Closing balance                                   19,959             16,988 
----------------------------------------------------------------------------

b. Producing assets


----------------------------------------------------------------------------
(thousands of U.S. dollars)            Six months ended          Year ended 
                                          Sept 30, 2012      March 31, 2012 
----------------------------------------------------------------------------
Cost                                                                        
Opening balance                               1,042,869           1,019,696 
Additions                                             -              16,458 
Transfers from other asset categories                 -               6,791 
Foreign currency translation                         43                 (76)
----------------------------------------------------------------------------
Closing balance                               1,042,912           1,042,869 
----------------------------------------------------------------------------
Accumulated depletion                                                       
Opening balance                                (453,957)           (312,767)
Additions                                       (80,051)           (141,266)
Foreign currency translation                        (42)                 76 
----------------------------------------------------------------------------
Closing balance                                (534,050)           (453,957)
----------------------------------------------------------------------------
Impairment                                     (133,415)           (133,415)
----------------------------------------------------------------------------
Net producing assets                            375,447             455,497 
----------------------------------------------------------------------------

c. Other Property, plant and equipment


----------------------------------------------------------------------------
                                                 Office                     
                                             equipment,                     
                                              furniture                     
(thousands of U.S.  Land and Transportation         and                     
 dollars)          buildings       Vehicles    fittings Pipelines     Total 
----------------------------------------------------------------------------
Cost                                                                        
Balance, March 31,                                                          
 2012                 18,346          2,376       8,754    10,772    40,248 
Additions /                                                                 
 Transfers                 3              -         383         3       389 
Disposals                  -            (27)       (136)        -      (163)
Foreign currency                                                            
 translation               -              -          58         -        58 
----------------------------------------------------------------------------
Balance, Sept 30,                                                           
 2012                 18,349          2,349       9,059    10,775    40,532 
----------------------------------------------------------------------------
                                                                            
Accumulated                                                                 
 depreciation                                                               
Balance, March 31,                                                          
 2012                 (6,127)        (1,482)     (4,449)   (7,341)  (19,399)
Additions               (508)           (87)       (723)     (247)   (1,565)
Disposals                  -              -           -         -         - 
Foreign currency                                                            
 translation               -              -         (43)        -       (43)
----------------------------------------------------------------------------
Balance, Sept 30,                                                           
 2012                 (6,635)        (1,569)     (5,215)   (7,588)  (21,007)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net book value,                                                             
 Sept 30, 2012        11,714            780       3,844     3,187    19,525 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                 Office                     
                                             equipment,                     
                                              furniture                     
(thousands of U.S.  Land and Transportation         and                     
 dollars)          buildings       Vehicles    fittings Pipelines     Total 
----------------------------------------------------------------------------
Cost                                                                        
Balance, March 31,                                                          
 2011                 18,108          2,395       5,978    10,752    37,233 
Additions                238              -       2,907        20     3,165 
Disposals                  -            (19)        (89)        -      (108)
Foreign currency                                                            
 translation loss          -              -         (42)        -       (42)
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2012                 18,346          2,376       8,754    10,772    40,248 
----------------------------------------------------------------------------
                                                                            
Accumulated                                                                 
 depreciation                                                               
Balance, March 31,                                                          
 2011                 (4,880)        (1,148)     (3,390)   (6,738)  (16,156)
Additions             (1,247)          (352)     (1,126)     (603)   (3,328)
Disposals                  -             18          34         -        52 
Foreign currency                                                            
 translation gain          -              -          33         -        33 
----------------------------------------------------------------------------
Balance, March 31,                                                          
 2012                 (6,127)        (1,482)     (4,449)   (7,341)  (19,399)
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net book value,                                                             
 March 31, 2012       12,219            894       4,305     3,431    20,849 
----------------------------------------------------------------------------

d. Capital work-in-progress


----------------------------------------------------------------------------
                                                   As at               As at
(thousands of U.S. dollars)                Sept 30, 2012      March 31, 2012
----------------------------------------------------------------------------
Capital work-in-progress                          23,260              15,757
----------------------------------------------------------------------------

6. Convertible Debentures

The Company issued Cdn$310 million, 5 percent convertible debentures (the "Debentures") on December 30, 2009. The Debentures mature on December 30, 2012 with interest paid semi-annually in arrears on January 1st and July 1st of each year. The Debentures are convertible at the option of the holder into common shares of the Company at a conversion price of Cdn$110.50 per common share until 60 days prior to the maturity date. The Company has the option to convert all or a portion of the Debentures at maturity into common shares at a 6 percent discount to the weighted average trading price for the 20 trading days prior to the maturity date. The Company continues to pursue its options for the repayment of the convertible debentures and expects resolution well in advance of maturity. The Company is working with the primary holder of the debentures regarding the amount and timing of a prepayment at par plus accrued interest, utilizing cash on hand and advances under its credit facility.

7. Share capital

a. Fully paid ordinary shares

The Company has authorized for issue an unlimited number of common shares and an unlimited number of preferred shares. The common shares issued are fully paid and the shares have no par value. No preferred shares have been issued.

b. Share options granted under the employee share option plan

The Company has reserved for issue 5,164,184 common shares for granting under stock options to directors, officers, and employees. The options become vested immediately to five years after the date of grant and expire one to six years after the date of grant. The stock options are settled in equity.

Stock option transactions for the respective periods were as follows:


----------------------------------------------------------------------------
                             Six months ended                    Year ended 
                                Sept 30, 2012                March 31, 2012 
----------------------------------------------------------------------------
                                     Weighted                      Weighted 
                                      average                       average 
                     Number of exercise price      Number of exercise price 
                       options          (Cdn$)       options          (Cdn$)
----------------------------------------------------------------------------
Opening balance      3,978,003          75.62      4,243,897          85.37 
Granted                247,625          26.16      1,160,750          55.70 
Forfeited              (31,000)         70.73       (155,750)         86.43 
Cancelled                    -              -       (587,500)        102.13 
Expired               (190,750)         90.52       (568,450)         80.97 
Exercised                    -              -       (114,944)         58.01 
----------------------------------------------------------------------------
Closing balance      4,003,878          71.89      3,978,003          75.62 
----------------------------------------------------------------------------
Exercisable          1,022,249          85.72        952,624          85.19 
----------------------------------------------------------------------------

The following table summarizes stock options outstanding and exercisable under the plan at Sept 30, 2012:


----------------------------------------------------------------------------
                            Outstanding Options         Exercisable Options 
----------------------------------------------------------------------------
                                              Weighted              Weighted
                                               average               average
                                  Remaining   exercise              exercise
                                       life      price                 price
Exercise Price           Options    (years)     (Cdn$)    Options     (Cdn$)
----------------------------------------------------------------------------
13.48 - 19.99            115,500       4.44      13.92          -          -
20.00 - 29.99                  -          -          -          -          -
30.00 - 39.99            110,500       3.74      36.22          -          -
40.00 - 49.99          1,214,066       1.97      47.62    154,811      49.35
50.00 - 59.99            252,375       3.37      52.04          -          -
60.00 - 69.99            204,375       2.74      63.24     41,000      63.55
70.00 - 79.99             66,750       2.33      73.41      6,750      76.87
80.00 - 89.99            593,563       1.19      86.41    314,563      89.07
90.00 - 99.99          1,056,750       1.34      95.86    458,000      95.64
100.00 - 109.99          365,249       2.45     104.36     42,750     106.63
110.00 - 112.64           24,750       2.11     111.09      4,375     111.30
----------------------------------------------------------------------------
                       4,003,878       1.99      71.89  1,022,249      85.72
----------------------------------------------------------------------------

The weighted average share price during the six months ended September 30, 2012 was $21.17 (2011 - $66.13).

c. Fair value measure of equity instruments granted

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average inputs:


----------------------------------------------------------------------------
                                  Three       Three              Six Months 
                                 months      months  Six months       ended 
                             ended Sept  ended Sept  ended Sept    Sept.30, 
                               30, 2012    30, 2011    30, 2012        2011 
----------------------------------------------------------------------------
Grant-date fair value          Cdn$5.04   Cdn$20.18    Cdn$8.55   Cdn$24.85 
Market price per share        Cdn$13.92   Cdn$57.05   Cdn$26.16   Cdn$74.39 
Exercise price per option     Cdn$13.92   Cdn$57.05   Cdn$26.16   Cdn$74.39 
Expected volatility                  51%         42%         47%         41%
Expected life (years)               4.1         4.5         3.9         4.1 
Expected dividend rate              1.7%        0.4%        1.1%        0.3%
Risk-free interest rate             1.2%        1.7%        1.3%        2.1%
Expected forfeiture rate            9.5%        6.0%        9.2%        6.0%
----------------------------------------------------------------------------

Expected volatility was determined based on the historical movements in the closing price of the Company's stock for a length of time equal to the expected life of each option. See note d. below for categorization of share-based payment expense during the period.

d. Share-based compensation disclosure

The Company prepares its statement of comprehensive income (loss) classifying costs according to function as opposed to the nature of the costs. As a result, share-based compensation expense is charged to various other headings in the statement of comprehensive income (loss).


----------------------------------------------------------------------------
                           Three months Three months  Six months  Six months
                             ended Sept   ended Sept  ended Sept  ended Sept
(thousands of U.S. dollars)    30, 2012     30, 2011    30, 2012    30, 2011
----------------------------------------------------------------------------
Share-based compensation                                                    
 expense included in:                                                       
 Exploration and evaluation                                                 
  assets                            268          122         534         475
 Operating expense                  330          493         637       1,017
 Exploration and evaluation                                                 
  expense                         1,861        1,996       3,397       3,225
 Share-based compensation                                                   
  expense                         3,342       20,424       6,902      26,620
----------------------------------------------------------------------------
Total                             5,801       23,035      11,470      31,337
----------------------------------------------------------------------------

8. Revenue


----------------------------------------------------------------------------
                                  Three       Three                         
                                 months      months  Six months  Six months 
                             ended Sept  ended Sept  ended Sept  ended Sept 
(thousands of U.S. dollars)    30, 2012    30, 2011    30, 2012    30, 2011 
----------------------------------------------------------------------------
Natural gas sales                52,444      76,294     110,262     154,679 
Oil and condensate sales         14,090      20,992      26,497      41,765 
Less:                                                                       
 Royalties                       (2,602)     (4,183)     (5,450)     (8,542)
 Government's share of                                                      
  profit petroleum               (5,852)     (6,293)    (18,130)    (12,814)
----------------------------------------------------------------------------
Oil and natural gas revenue      58,080      86,810     113,179     175,088 
----------------------------------------------------------------------------

Revenues from oil and gas sales to Petrobangla comprised 21 percent of natural gas, oil and condensate sales for the six months ended September 30, 2012 (2011 - 14 percent).

In June 2012, the Company recorded a $6 million increase in profit petroleum expense due to a court ruling indicating the 36-inch pipeline is not eligible for cost recovery. The Company has appealed the decision with division bench of Delhi High Court.

9. Exploration and evaluation expenses


----------------------------------------------------------------------------
                           Three months Three months  Six months  Six months
                             ended Sept   ended Sept  ended Sept  ended Sept
(thousands of U.S. dollars)    30, 2012     30, 2011    30, 2012    30, 2011
----------------------------------------------------------------------------
Geological and geophysical        6,555       35,071      18,274      38,992
Exploration and evaluation                                                  
 (well cost)                     37,448          564      49,592         579
General and administrative        3,835        4,005       8,672       7,726
Production sharing contract                                                 
 annual payments                  1,797        3,191       6,492       7,433
New ventures                      1,383          290       2,873       1,315
Share-based compensation          1,861        1,996       3,397       3,225
----------------------------------------------------------------------------
Exploration and evaluation       52,879       45,117      89,300      59,270
----------------------------------------------------------------------------

10. General and administrative expenses


----------------------------------------------------------------------------
                                  Three       Three                         
                                 months      months  Six months  Six months 
                             ended Sept  ended Sept  ended Sept  ended Sept 
(thousands of U.S. dollars)    30, 2012    30, 2011    30, 2012    30, 2011 
----------------------------------------------------------------------------
Salaries                            927         953       2,054       1,191 
Legal fees                           84         819         187       2,855 
Consultants                         636         259         708         419 
Rent                                148         191         286         382 
Management fees                     122         164         264         327 
Audit fees                          172         138         212         251 
Insurance                             -           -          10           - 
Others                              536         104       1,023        (221)
Head office costs                                                           
 reclassified according to                                                  
 function                          (359)       (771)       (421)     (1,189)
----------------------------------------------------------------------------
General and administrative                                                  
 expense                          2,266       1,857       4,323       4,015 
----------------------------------------------------------------------------

The Company prepares its statement of comprehensive income (loss) classifying costs according to function as opposed to the nature of the costs. As a result, general and administrative expenses are charged to various other headings in the statement of comprehensive income / (loss). General and administrative expenses of $4 million and $9 for the three and six months ended September 30, 2012 (2011 - $4 million and $8 million) are categorized as exploration and evaluation expenses and of $3 million and $5 million for the three and six months ended September 30, 2012, (2011 - $3 million and $6 million) are categorized as production and operating expenses.


----------------------------------------------------------------------------
                           Three months Three months  Six months  Six months
                             ended Sept   ended Sept  ended Sept  ended Sept
(thousands of U.S. dollars)    30, 2012     30, 2011    30, 2012    30, 2011
----------------------------------------------------------------------------
Audit fees                          201          162         243         325
Management fees                     125          167         270         332
Legal fees                          261          900         460       3,137
Salary                            3,286        3,457       6,987       5,374
Insurance                         1,573        1,562       3,332       3,156
Security                            208          226         425         447
Rent                                521          386       1,008         776
Travel                              116          215         357         437
Consultants                         890          313       1,063         526
Non-operating and other           1,995          487       4,664       1,216
Office costs                        342          740         579       1,510
----------------------------------------------------------------------------
Total                             9,518        8,615      19,388      17,236
----------------------------------------------------------------------------

11. Finance expense


----------------------------------------------------------------------------
                           Three months Three months  Six months  Six months
                             ended Sept   ended Sept  ended Sept  ended Sept
(thousands of U.S. dollars)    30, 2012     30, 2011    30, 2012    30, 2011
----------------------------------------------------------------------------
Interest expense related to                                                 
 capital lease                    1,360        1,472       2,759       3,012
Interest expense on long-                                                   
 term debt                          753            -       1,781           -
Interest expense on                                                         
 convertible debentures           3,894        3,874       7,729       7,861
Accretion expense on                                                        
 convertible debentures           1,459        1,358       2,765       2,624
Accretion expense on                                                        
 decommissioning                                                            
 obligations                        703          593       1,393       1,117
Bank fees and charges and                                                   
 other finance costs                684          707         749       1,127
----------------------------------------------------------------------------
Finance expense                   8,853        8,004      17,176      15,741
----------------------------------------------------------------------------

12. Earnings per share

The earnings used in the calculation of basic and diluted per share amounts are as follows:


----------------------------------------------------------------------------
(thousands of U.S. dollars)       Three       Three                         
                                 months      months  Six months  Six months 
                             ended Sept  ended Sept  ended Sept  ended Sept 
                               30, 2012    30, 2011    30, 2012    30, 2011 
----------------------------------------------------------------------------
Net loss                        (28,573)    (43,916)   (120,696)    (98,899)
----------------------------------------------------------------------------

A reconciliation of the weighted average number of ordinary shares for the purpose of calculating basic earnings per share to the weighted average number of ordinary shares for the purpose of calculating diluted earnings per share is as follows:


----------------------------------------------------------------------------
                           Three months Three months  Six months  Six months
                             ended Sept   ended Sept  ended Sept  ended Sept
(thousands of U.S. dollars)    30, 2012     30, 2011    30, 2012    30, 2011
----------------------------------------------------------------------------
Weighted average number of                                                  
 common shares used in the                                                  
 calculation of basic and                                                   
 diluted earnings per share  51,641,845   51,576,804  51,641,845  51,552,168
----------------------------------------------------------------------------

As a result of the net loss in the periods ended September 30, 2012 and 2011, the outstanding stock options of 4,003,878 and 3,766,752, respectively, and shares issuable upon conversion of the outstanding debentures of 2,805,430 as at September 30, 2012 and 2011 were considered anti-dilutive to the loss per share and were excluded from the weighted average number of common shares for the purposes of diluted earnings per share. The average market value of the Company's common shares for purposes of calculating the dilutive effect of stock options for the periods was based on quoted market prices for the periods that the options were outstanding. The number of shares issuable upon conversion of the outstanding debentures is based on the conversion price of Cdn$110.50 per common share, which is applicable to conversion at the option of the holder until 60 days prior to the maturity date.

13. Segmented Information

a. Products and services from which reportable segments derive their revenues

The Company's operations are conducted in one business sector, the oil and natural gas industry. All revenues are from external customers. All of Bangladesh sales are received from one customer and this customer accounted for 21 percent of sales during the six months ended September 30, 2012.

b. Determination of reportable segments

Geographical areas are used to identify the Company's reportable segments. A geographic segment is considered a reportable segment once its activities are regularly reviewed by the Company's management. The accounting policies of the information of the reportable segments are the same as those described in the summary of significant accounting policies.

c. Segment assets and liabilities, revenues and results


----------------------------------------------------------------------------
                          Six months ended               Year ended         
                         September 30, 2012             March 31, 2012      
----------------------------------------------------------------------------
                                          Additions to:                     
----------------------------------------------------------------------------
                      Exploration     Property,                             
                              and     plant and    Exploration     Property,
                       evaluation     equipment and evaluation     plant and
Segment               assets (E&E)        (PP&E)        assets     equipment
----------------------------------------------------------------------------
Bangladesh                      -           955             63         3,004
India                         111           292          2,432        18,599
Indonesia                  66,737         8,214         16,676             -
Kurdistan                     373       (565)(1)        24,795             -
Madagascar                      2             -              9             -
Pakistan                        -             -            248             -
Trinidad                   26,482         1,913        120,753         1,466
All other                       -            51              -         3,165
----------------------------------------------------------------------------
Total                      93,705        10,860        164,976        26,234
----------------------------------------------------------------------------
(1) Negative additions in property, plant and equipment for Kurdistan are   
    the result of impairment of inventory.                                  
----------------------------------------------------------------------------
               As at September 30, 2012           As at March 31, 2012      
----------------------------------------------------------------------------
Segment                               Total                            Total
            Total E&E Total PP&E     assets  Total E&E Total PP&E     assets
----------------------------------------------------------------------------
Bangladesh      4,737     26,579     40,995      4,737     31,605     46,617
India         136,214    396,609    669,644    136,104    454,421    730,134
Indonesia     503,791     10,221    555,871    510,161          -    534,923
Kurdistan      11,532          -     14,505     50,519        749     54,573
Madagascar      1,211         44      1,347      1,209          -      1,377
Pakistan          248         15        323        248          -        310
Trinidad      160,684      3,581    189,246    153,902      1,467    190,617
All other           -      1,142     77,356          -     20,849     59,936
----------------------------------------------------------------------------
Total         818,417    438,191  1,549,287    856,880    509,091  1,618,487
----------------------------------------------------------------------------

To view tables associated with this release, please visit the following link: http://media3.marketwire.com/docs/1113nko.pdf.

14. Contingent Liabilities

a. During the year ended March 31, 2006, a group of petitioners in Bangladesh (the petitioners) filed a writ with the High Court Division of the Supreme Court of Bangladesh (the High Court) against various parties including Niko Resources (Bangladesh) Ltd. (NRBL), a subsidiary of the Company.

In November 2009, the High Court ruled on the writ. Both the Company and the petitioners have the right to appeal the ruling to the Supreme Court. The ruling can be summarized as follows:


----------------------------------------------------------------------------
Petitioner Request                      High Court Ruling                   
----------------------------------------------------------------------------
That the Joint Venture Agreement for    The Joint Venture Agreement for Feni
the Feni and Chattak fields be          and Chattak fields is valid.        
declared null and illegal.                                                  
----------------------------------------------------------------------------
That the government realize from the    The compensation claims should be   
Company compensation for the natural    decided by the lawsuit described in 
gas lost as a result of the             note (b) below or by mutual         
uncontrolled flow problems as well      agreement.                          
as for damage to the surrounding                                            
area.                                                                       
----------------------------------------------------------------------------
That Petrobangla withhold future        Petrobangla to withhold future      
payments to the Company relating to     payments to the Company related to  
production from the Feni field          production from the Feni field until
($27.9 million as at September 30,      the lawsuit described in note (b)   
2012).                                  below is resolved or both parties   
                                        agree to a settlement.              
----------------------------------------------------------------------------
That all bank accounts of the           The ruling did not address this     
Company maintained in Bangladesh be     issue, therefore the previous ruling
frozen.                                 stands. Funds in the Company's bank 
                                        accounts maintained in Bangladesh   
                                        cannot be repatriated pending       
                                        resolution of the lawsuit described 
                                        in note (b) below.                  
----------------------------------------------------------------------------

On January 7, 2010, NRBL requested an arbitration proceeding with the International Centre for the Settlement of Investment disputes (ICSID). The arbitration is between NRBL and three respondents: The People's Republic of Bangladesh; Bangladesh Oil, Gas & Mineral Corporation (Petrobangla); and Bangladesh Petroleum Exploration & Production Company Limited (Bapex). The arbitration hearing will attempt to settle all compensation claims described in this note and note (b). ICSID registered the request on May 24, 2010.

In June 2010, the Company filed an additional proceeding with ICSID to resolve its claims for payment from Petrobangla in accordance with the Gas Purchase and Sale Agreement with Petrobangla to receive all amounts for previously delivered gas.

b. During the year ended March 31, 2006, Niko Resources (Bangladesh) Ltd. received a letter from Petrobangla demanding compensation related to the uncontrolled flow problems that occurred in the Chattak field in January and June 2005. Subsequent to March 31, 2008, Niko Resources (Bangladesh) Ltd. was named as a defendant in a lawsuit that was filed in Bangladesh by Petrobangla and the Republic of Bangladesh demanding compensation as follows:

(i) taka 422,026,000 ($5.17 million) for 3 Bcf of free natural gas delivered from the Feni field as compensation for the burnt natural gas;

(ii) taka 828,579,000 ($10.15 million) for 5.89 Bcf of free natural gas delivered from the Feni field as compensation for the subsurface loss;

(iii) taka 845,560,000 ($10.36 million) for environmental damages, an amount subject to be increased upon further assessment;

(iv) taka 6,330,398,000 ($77.53 million) for 45 Bcf of natural gas as compensation for further subsurface loss; and

(v) any other claims that arise from time to time.

ICSID has registered the request for arbitration of the issues indicated above as discussed in note 14(a). In addition, the Company will actively defend itself against the lawsuit, which may take an extended period of time to settle. Alternatively, the Company may attempt to receive a stay order on the lawsuit pending either a settlement and/or results of ICSID arbitration. The Company believes that the outcome of the lawsuit and/or ICSID arbitration and the associated cost to the Company, if any, are not determinable. As such, no amounts have been recorded in these consolidated financial statements. Settlement costs, if any, will be recorded in the period of determination.

c. In accordance with natural gas sales contracts to customers of production from the Hazira field in India, the Company had committed to deliver certain minimum quantities and was unable to deliver the minimum quantities for a period ending December 31, 2007. The Company's partner in the Hazira field delivered the shortfall volumes in return for either: (a) delivery of replacement volumes five times greater than the shortfall; (b) a cash payment; or (c) a combination of (a) and (b). The Company's partner has served a notice of arbitration as the Company is unable to supply gas from the D6 block to the partner and the arbitration process has commenced. The Company estimates the cash amount to settle the contingency at US$11.6 million. The Company believes that the agreement with its partner is not effective as the Government of India's gas utilization policy prevents the Company from supplying the gas to the partner. The Company believes that the outcome is not determinable.

The Company may not be able to supply gas to a customer in Hazira whose contract runs until mid-2016. The Company had previously planned to supply gas from the D6 Block to the customer. Due to a change in the gas allocation policy by the Government of India, the Company may not be able to fulfill the contract with gas supply from the D6 Block. The Company has notified the customer that the underperformance of reservoir is a force majeure event. The customer does not agree with this position and has served a notice of arbitration on the Company. The matter is subjudice in a court of law. The Company believes that the outcome is not determinable.

d. In a May 2012 letter, the GOI alleged that the joint venture partners in the D6 Block are in breach of the PSC for the D6 Block as they failed to drill all of the wells and attain production levels contemplated in the Addendum to the Initial Development Plan for the Dhirubhai 1 and 3 fields. The GOI has further asserted that joint venture costs totalling $1.462 billion (the Company's share totalling $146.2 million) are therefore disallowed for cost recovery. The joint venture partners are of the view that the disallowance of recovery of costs incurred by the joint venture has no basis in the terms of the PSC and that there are strong grounds to challenge the action of the GOI. Reliance has commenced arbitration proceedings against the GOI challenging the allegations and the disallowance of cost recovery. To the extent that any amount of joint venture costs are disallowed, such amount would be treated as profit petroleum in the future, a portion of which would be payable to the GOI under the PSC. Because profit petroleum percentages for the joint venture partners and the GOI change as the joint venture partners recover specified percentages of their investments, the potential impact on the Company's future profit petroleum expense (which represents the GOI's share of profit petroleum) is dependent on the future revenue and expenditures in the block and cannot be precisely determined at this time. Based on the economic inputs used for the proved and proved plus probable reserves in the March 31, 2012 Ryder Scott Report, the Corporation has estimated the potential undiscounted before tax impact to be between $25 to $46 million. The arbitral tribunal is in the process of being constituted with Reliance and the GOI having nominated two of the three arbitrators. The outcome of these proceedings is not determinable.

e. The Company has filed its income tax returns in India for the taxation years 1998 through 2008 under provisions that provide for a tax holiday deduction for eligible undertakings related to the Hazira and Surat fields.

The Company has received unfavorable tax assessments related to taxation years 1999 through 2008. The assessments contend that the Company is not eligible for the requested tax holiday because: a) the holiday only applies to "mineral oil" which excludes natural gas; and/or b) the Company has inappropriately defined undertakings.

In India, there are potentially four levels of appeal related to tax assessments: Commissioner Income Tax - Appeals ("CITA"); the Income Tax Appellate tribunal ("ITAT"); the High Court; and the Supreme Court. For taxation years 1999 to 2004, the Company has received favorable rulings at ITAT and the revenue Department has appealed to the High Court. For the 2005 taxation year, the Company has received a favorable ruling at CITA. For the 2006, 2007 and 2008 taxation years, the Company has appealed to CITA, however, CITA has agreed to wait for the High Court ruling on previous years prior to their ruling. The taxation years 2009 and later have not yet been assessed by the tax authorities.

In August 2009, the Government of India through the Finance (No.2) Act 2009 amended the tax holiday provisions in the Income Tax Act (Act). The amended Act provides that the blocks licensed under the NELP-VIII round of bidding and starting commercial production on or after April 1, 2009 are eligible for the tax holiday on production of natural gas. However, the budget did not address the issue of whether the tax holiday is applicable to natural gas production from blocks that have been awarded under previous rounds of bidding, which includes all of the Company's Indian blocks. The Company has previously filed and recorded its income taxes on the basis that natural gas will be eligible for the tax holiday.

With respect to "undertakings" eligible for the tax holiday deduction, the Act was amended to include an "explanation" on how to determine undertakings. The Act now states that all blocks licensed under a single contract shall be treated as a single undertaking. The "explanation" is described in the amendment as having retrospective effect from April 1, 2000. Since tax holiday provisions became effective April 1, 1997, it is unclear as to why the "explanation" has effect from April 1, 2000. The Hazira production sharing contract (PSC) was signed in 1994 and commenced production prior to April 1, 2000. As a result, the Company is unable to apply the amended definition of "undertaking" to the Hazira PSC. The Company has previously filed and recorded its income taxes for the taxation years of 1999 to 2008 on the basis of multiple undertakings for the Hazira and Surat PSC.

The Company will continue to pursue both issues through the appeal process. The Company has challenged the retrospective amendments to the undertakings definition and the lack of clarification of whether natural gas is eligible for the tax holiday with the Gujarat High Court. The Company was granted an interim relief by the High Court on March 12, 2010 instructing the Revenue Department to not give effect to the "explanation" referred to above retrospectively until the matter is clarified in the courts. Even if the Company receives favourable outcomes with respect to both issues discussed above, the Revenue Department can challenge other aspects of the Company's tax filings.

For the taxation years ended March 31, 2009 through March 31, 2011, the Company has filed its tax return assuming natural gas is eligible for the tax holiday at Hazira and Surat but, unlike all previous years, has filed its tax return based on Hazira and Surat each having a single undertaking. The Company has reserved its right, under Indian tax law, to claim the tax holiday with multiple undertakings. While the Company still believes that it is eligible for the tax holiday on multiple undertakings, the change in method of filing is because the legislative changes, referred to above, lead to ambiguity in the Act. More specifically, if the Company had filed its return in a manner that is deemed to be in violation of the current legislation, the Company can be liable for interest and penalties. Further, at the time of filing the 2009 and 2010 tax returns, the Company had not appealed the amendments brought out in the tax holiday provisions and did not have the benefit of the interim relief by the High Court. As a result, the Company has filed in a more conservative manner than its interpretation of tax law as described previously. Despite filing in a conservative manner, the Company will continue to pursue the tax holiday changes through the appeals process.

Should the High Court overturn the rulings previously awarded in favour of the Company by the Tribunal court, and the Company either decides not to appeal to the Supreme Court or appeals to the Supreme Court and is unsuccessful, the Company would have to accordingly change its tax position and record a tax expense of approximately $56 million (comprised of additional taxes of $34 million and write off of approximately $22 million of the net income tax receivable). In addition, the Company could be obligated to pay interest on taxes for the past periods.

f. The Cauvery and D4 Blocks in India are under relinquishment. The Company believes it has fulfilled all commitments for the Cauvery block while the Government of India contends that the Company has unfulfilled commitments of up to approximately $2 million. The Company believes the outcome is currently not determinable.

g. Various lawsuits have been filed against the Company for incidents arising in the ordinary course of business. In the opinion of management, the outcome of the lawsuits, now pending, is not determinable or not material to the Company's operations. Should any loss result from the resolution of these claims, such loss will be charged to operations in the year of resolution.

Contacts:
Niko Resources Ltd.
Edward Sampson
Chairman of the Board, President & CEO
(403) 262-1020

Niko Resources Ltd.
Murray Hesje
VP Finance & CFO
(403) 262-1020
www.nikoresources.com

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