From an analysist.Company: Nexus Energy (NXS $0.51/sh) Buy...

From an analysist.

Company: Nexus Energy (NXS $0.51/sh) Buy

Valuation: $0.72/sh
Price Target: $0.75/sh

Reason For Update: Grayling-1A gas discovery and update

Quick Comment: NXS has confirmed 3 gas columns in Grayling-1A (NXS 37.5%)
over a total of 78m in good quality reservoirs. Preliminary recoverable
reserve estimates are in the 100-150bcf range (gross) which equates to
$0.16 - 0.24/sh to NXS.
It is likely from this result that Grayling will present a tie-in
opportunity to Longtom (NXS 37.5%).

Investment Case: The recent positive gas results from Longtom and Grayling
has firmed up large volumes of gas for NXS to build the platform for a
substantial oil & gas company. Our base case NXS valuation is $0.72/sh
wich does not include any of NXS's assets outside its VIC/P54 permit which
holds the Longtom and Grayling discoveries. Farmouts and potential
appraisal at Longtom will provide newsflow moving in to a big exploration
program (3-5 wells) in the Dec H'05.

Details:

Our NXS valuation is outlined below:

4 Longtom 300bcf and Grayling 100bcf our current base case valuation
including cash totals $0.72/sh

4 Longtom ing cash totals $1.12/sh
500bcf and Grayling 150bcf our current upside case valuation
includ
Core analysis from Longtom should be expected within the next week. If the
analysis shows reservoir damage from the Longtom testing indicating the
top reservoir section is capable of being flowed, recoverable gas reserves
could be >500bcf. Currently our base case valuation assumes the top
section is incapable of flowing from core analysis, netting 300bcf.

Following the gas result at Grayling, NXS and Apache will reinterpret data
with a view to drilling another exploration well in VIC/P54 this CY.

Farmouts from NT/P66, VIC/P56 and VIC/P49 (all NXS 100%) over the next few
months should continue to imply further value accretion for NXS similar to
its farmout last year of the VIC/P54 licence to Apache. It is likley NXS's
outlay for the initial exploration wells in these permits will be minimal.