An anonymous director reports

UPDATE ON DISAGREEMENT BETWEEN SHORECAN AND ESSAR MAURITIUS

Canadian Overseas Petroleum Ltd. is in disagreement with Essar Exploration & Production Ltd. regarding aspects of the Essar Nigeria shareholders agreement. The shareholder agreement governs the relationship between ShoreCan and Essar Mauritius in respect of their respective interests in Essar Exploration and Production Ltd. (Nigeria). ShoreCan has an 80-per-cent interest in Essar Nigeria, which has a 100-per-cent contracted interest in OPL226, which is located in shallow to mid-water offshore Nigeria.

No formal proceedings have been issued in respect of the disagreement and the shareholders agreement provides for a process of good faith discussions between the respective executive officers prior to any formal proceedings being commenced. ShoreCan has proposed this process to Essar Mauritius and is currently awaiting a reply.

As previously disclosed, ShoreCan and Essar Mauritius, the company that owns 20 per cent of Essar Nigeria shares, are currently in disagreement about whether the other party is in compliance with its respective obligations under the Essar Nigeria shareholders agreement. The disagreement centres on the view that ShoreCan has not commenced financing of the agreed upon $80-million cumulative financing in Essar Nigeria. The parties are in discussions to imminently resolve the disagreement amicably and no formal proceedings have been commenced by either party. As such, there is no quantifiable impact to the company's working capital or its operations. The company's directors believe, based on legal advice, that ShoreCan has several valid defences and counterclaims to any action that might be brought by Essar Mauritius in the event that the current disagreement escalates. In the meantime, ShoreCan continues to pursue the completion of the financing initiatives previously announced for OPL 226. Essar Nigeria continues to operate as before.