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Major Points


NXS are set to spud the first of two wells in the offshore
Gippsland Basin in late October. NXS will retain 37.5% of its
VIC/P54 offshore permit in return for Apache assuming
operatorship and funding 94% the wells for a 62.5% interest.

The first well, the Longtom-2 appraisal well could be worth
~35cps (fully diluted) to NXS if the estimated P50 recoverable
gas reserves of 251 bcf are present. The high case P10
reserves of 481 bcf would value NXS at >65cps if achieved.

The Longtom gas field was discovered by BHP in 1995 but
was considered sub-commercial (70-120 bcf) at the time due
to the lack of maturity of the gas markets and the interpreted
reservoir quality. A 386m gas column was intersected in the
Emperor Formation in Longtom-1 and ST1 and no gas-water
contact was intersected due to drilling problems encountered
- suggesting deeper reservoir potential exists.

The 104 mmbbl Grayling oil exploration prospect will be the
second well drilled following Longtom-2. Grayling is a well
defined 3D structure analogous to the large Turrum field 7km
to the south with a main reservoir objective in the Intra-Latrobe
Formation. Conservatively, every 10mmbbls of recoverable oil
discovered by the VIC/P54 JV will equate to ~14cps to NXS.

A $5.5m placement coupled with a 90% take-up in its July 31
$0.18 options raising $4.4m has enabled NXS to be funded
for its share of forecast exploration and G & G work for the
FY’05. NXS currently has $10m cash.

Apache have an exclusive option to farm in to the VIC/P56
permit (NXS 100%, 40km SE of VIC/P54), due to expire in
early October. NXS anticipates drilling a VIC/P56 oil prospect
in the June H’05 - Haddock, a 50 mmbbl target looks the likely
candidate. We anticipate NXS will ensure a 2:1 farmout on the
permit, i.e. retain 50% free-carried.

An airborne gravity survey has been acquired over NXS’s 100%
owned NT/P66 permit with the aim of ensuring future seismic
is focused over the more prospective areas of the permit
(proximal to salt structures). We anticipate NXS will acquire a
2D seismic suite before farming out to a major next CY.

Near term activity in the VIC/P39 permit (NXS 100%) will
include acquisition and interpretation of 2D seismic with the
aim of proving up and drilling one of the two current leads,
Galloway (30mmbbls) and Angus (25mmbbls) in the Dec H’05.
We anticipate NXS will continue to add to its three Gippsland
permits as opportunities arise.

NXS exhibits sensational leverage to exploration in a proven
large scale petroleum province. The Apache farm-in endorses
the NXS strategy and adds confidence on prospectivity and
gas marketing potential. Despite the recent shareprice
outperformance we anticipate the shareprice has further upside
before drilling commences in October.