merrills increase their target price, page-2

Crux resource estimate now 65mmbbl
We have increased our risked valuation of Crux given additional confidence in the
field size with the recent 18% upgrade in liquids resource from 55mmbbl to
65mmbbl, and further detailed project modelling. We have elected to lift our
risking from 25% to 50% given there are now three reservoir intersections
delineating the field.
Lifting our Price Objective to $1.85ps, 40% upside
We have increased our NPV and price objective from $1.50ps to $1.85ps as a
result of further de-risking and modelling of the Crux resource. Our risked Crux
project valuation has been lifted from 20cps to 54cps.
Still more scope for valuation upside with Echuca Shoals
Nexus plans to drill the Echuca Shoals-2 appraisal well, with JV partner Shell,
using the Ocean Epoch rig in August. Current estimates for Echuca Shoals stand
at 2.2tcf with 135mmbbl condensate, which we risk at 10% in our valuation.
Maintain Buy recommendation
We continue to believe that a Crux project is viable and offers substantial value
potential upside to the current share price. However, aside from reservoir risks,
investors should remain aware of the uncertainty facing Nexus as to how it would
finance its appraisal/development programs given large equity positions in high
cost offshore environments. Given the company’s track record, we anticipate
further astute farm-out deals (at or before FID) with a mix of debt and equity would
be used to meet capital requirements.
The next potential share price catalysts are Echuca Shoals-2 appraisal well and
results from an independent reserves assessment of the Crux field, both of which
are expected in 3Q07.