Equator, together with Peak Petroleum Industries Nigeria Limited (Peak), is currently drilling appraisal wells on Oil Mining Lease (OML) 122 located 25 to 60 km offshore Nigeria in water depths of 40 to 300 metres. OML 122 covers an area of 1,295 square km on the Western Niger Delta, east of Shell’s giant Bonga Field (estimated 1.4 billion barrels) on OML 118 and southwest of Shell’s EA Field on OML 79.

Equator and Peak commenced drilling the first Bilabri appraisal well, DX1, in November 2005. This well was successfully completed in February 2006 and confirmed oil and gas reserves in the Bilabri field. Horizon Energy Partners BV (Horizon), independent technical advisers to Equator, quote the Proven and Probable reserves of the oil reservoir as 45 million barrels and the aggregate Proven and Probable reserves of the gas reservoirs as 734 billion standard cubic feet, both at the Best Estimate level.

In March 2006, the drilling rig was moved 18 miles to the south and an exploration well, Owanare AX1, commenced on the large and promising Owanare prospect on OML 122. This well discovered gas in shallow zones but was unable to reach the deeper objectives as a result of high pressure and temperature. The well was suspended pending later re-entry for completion as a gas production well once a suitable development plan and gas market has been secured. Horizon estimates the gas-in-place to be 185 billion cubic feet.

Following the Owanare well, drilling of the first horizontal appraisal/development well, D2 commenced on the Bilabri field. The Bilabri D2 well was drilled to a deviated depth of 2,912 metres. The well was logged successfully but as it encountered the C1 sands 48 metres shallower than expected it was unable to test for oil in the C1 objective. However, the well encountered an 8 metre column of oil in the C2 sands of the reservoir. The C2 oil is of excellent quality with an oil gravity of 39° API. The original DX1 well encountered an oil column in the C2 sands of approximately 22 metres. The D2 well establishes the existence of a larger aerial extent of this reservoir. The existence of C2 oil was unexpected in the area of the D2 well and as such is considered to be incremental to the development plan.

The Bulford Dolphin drilling rig will leave the D2 drill site and begin work on the next appraisal well. This next well, the Bilabri D3 well, is anticipated to have similar depths and objectives as the D2 well. It is expected that the rig will return to the D2 well in early 2007 to complete the well as a production well to be tied into the Bilabri development.

Equator and Peak are pursuing the immediate development of the oil reservoir with a scheme based on 6-7 sub-sea horizontal wells and a floating production, storage and offloading system (FPSO). Orders for long lead time equipment have been placed and an FPSO contract has been signed with BW Offshore. First production is planned for the second half of 2007.

The D2 well was the culmination of the two well drilling commitment of Equator to fund the cost of two wells to earn a 40% economic interest in the Bilabri field. Further development drilling of the Bilabri field will be shared with Peak on a 60/40 basis with Peak assuming its obligation to fund its 60% share.