Update on OPL 321 and OPL 323

Source: www.gulfoilandgas.com 1/26/2009, Location: Africa

Equator Exploration Limited would like to update shareholders on recent events regarding the status of OPL 321 and OPL 323.

BACKGROUND
In the Nigerian 2005 bid round held in August 2005, a bidding group comprising ONGC Videsh Ltd ('ONGC'), Equator and OWEL E&P Ltd ('OWEL'), submitted the winning bids for the Oil Prospecting Licences ('OPLs') for blocks 321 and 323. The bids included signature bonuses totaling US$485 million. However, the Korean National Oil Corporation ('KNOC') exercised a right of first refusal granted to it in recognition of a commitment by KNOC to implement a downstream project. After discussion among all parties, KNOC was awarded a 60% interest in the blocks and appointed as operator. A 30% interest was awarded to the ONGC group while the remaining 10% was awarded to Local Content Vehicles ('LCVs') - Tulip Energy Resources Nigeria Limited for OPL 321 and NJ Exploration Limited for OPL 323. ONGC declined its part of the award, allowing Equator to take the allocated share. The Government of Nigeria and KNOC consented to this and Equator made payment to the Nigerian Government of a full one-third share of the signature bonuses totaling US$161.7 million. On 10 March 2006, Equator signed the two Production Sharing Contracts with the Nigerian National Petroleum Corporation and the other parties as a full independent party with a 30 per cent interest. The Company also signed the Joint Operating Agreements with the other participants on 7 June 2007. Since March 2006, Equator has participated fully with the other parties in all of the technical and commercial decisions related to the detailed evaluation of the hydrocarbon prospects and in the preparations for drilling.

UPDATE
The Company has recently been informed by the Ministry of Energy of a decision made by the President of Nigeria to void the allocation of the blocks to KNOC and to restore the status of the ONGC Consortium as the winning bidder, subject to their payment in full of the US$485 million signature bonus within 60 days of 6 January 2009. KNOC and ONGC have confirmed to the Company that they have received letters from the Ministry of Energy to this effect. We understand that the basis of the decision is the non-payment by KNOC of the signature bonus offered by the winning bidder in full and that the portion of the signature bonus paid by KNOC will be refunded forthwith.

As stated above, Equator did pay its portion of the signature bonuses in full. Equator has received verbal assurances from the Ministry that its participating interest in the two PSCs is unaffected by the decision to void KNOC's allocation but to date has received no direct written communication. The directors continue to believe that the Company's interest in the OPLs remains intact and that Equator will have the right either to participate with the ONGC Consortium in a new PSC or to have its signature bonus refunded.

In order to protect its investment to date of US$16 million in petroleum operations, Equator is working with KNOC, ONGC and all LCV partners to ensure that the preparation for drilling operations continues with the minimum of disruption. The Company will continue to keep shareholders and the markets informed of events.


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