Gulf Indonesia's progress report

Gas Production and Development

Gas volumes from the Corridor Gas Project in the second quarter of 2000 were 162 mmcf/d compared to 169 mmcf/d in the same period last year, contributing $45 million to cash generated from operations and $15 million to earnings for the second quarter of 2000.

The installation of pre-treatment facilities in the second quarter has expanded the capacity of the Corridor Gas Plant and is expected to further reduce gas operating costs in the future by about 10 per cent to as low as $0.15 per mcf or $0.90 per boe.

Development of the West Natuna Gas project continues to progress towards completion in the fourth quarter of 2000. In the second quarter, the laying of the pipe for the 650-kilometre West Natuna pipeline system was completed and hydro-testing of the system is now underway. The work on the Kakap upstream facilities required for the project continues on schedule for completion by the end of the year. The company continues to negotiate with the buyer of the West Natuna gas for the early sales of gas starting in late 2000 prior to commencement of the full sales contract in mid-2001.

Progress has been made on the pipeline tariff negotiations for transporting additional gas volumes to Caltex through the existing Grissik to Duri pipeline. Further work is required with PGN (the Indonesian state gas transmission company), Caltex and the Indonesian regulatory authorities to finalize these contract negotiations.

Contract negotiations for the supply of gas to Singapore from South Sumatra are also ongoing, with resolution by the Singapore authorities of the gas requirements in the initial contract period as the major remaining issue required prior to finalizing the gas sales agreement.

Oil Production and Development

The company's onshore oil development program continues to contribute significantly to onshore crude oil sales volumes, helping to offset natural production declines in mature fields. Over the past twelve months, the company has drilled and brought on-stream 18 oil development wells in the Corridor TAC area at a cost of approximately $500,000 per well, contributing 2,500 b/d (17 per cent) to the second quarter 2000 onshore crude oil sales volumes and $2.7 million to second quarter cash generation. A further two wells had been drilled at the end of the second quarter and will be brought on stream in the third quarter. Over 20 additional wells are planned for the Corridor TAC in the second half of 2000.

Offshore oil sales volumes declined to 5,800 b/d for the second quarter of 2000 from 5,900 b/d in the second quarter of 1999 as the impact of the natural production declines of the Kakap fields was mostly offset by the impact of inventory changes. The average quarterly production volumes decreased to 4,900 b/d from 6,200 b/d while the timing of liftings from the Floating Processing Storage and Offloading vessel added to reported sales volumes by 900 b/d in the second quarter of 2000 versus lowering sales volumes by 300 b/d in the second quarter of 1999.

Exploration

Offshore

The company's "big-hit" offshore oil exploration program commenced in April 2000. The Ande Ande Lumut-1 well, in the Northwest Natuna Block I contract area operated by Premier Oil plc, reached a total depth of 4,186 feet in mid-April. It logged oil pay and recovered oil samples from four sands of the Gabus Formation, one of the main producing formations in the basin. A test conducted through perforations between 3,798 and 3,840 feet encountered sand influx and subsequent water channeling and was terminated without a sustained oil flow. Plans for appraisal drilling in early 2001 to delineate the Ande Ande Lumut field are being considered by the partners. Gulf Indonesia holds a 30 per cent non-operated working interest in the Northwest Natuna Block I PSC, which is located in the Natuna Sea, 60 kilometres north of the company's Kakap PSC production facilities.

Drilling of the next well in the 'big-hit' program, the Sawangan 1 well in the Sakala Timur block in the East Java area, commenced in mid-July. Due to the potential of this prospect, the company decided to accelerate the timing of the drilling and fund the costs on a 100 per cent basis. Initial results from the well are expected later in August.

Drilling of four wells in the Ketapang block and one well in the Sebuku block will commence in the fourth quarter and is expected to be completed over six months. The company continues its efforts to find a partner for these highly prospective blocks to spread its risk capital over more opportunities.

Onshore

Drilling of the Suban 4 delineation well in South Sumatra commenced in June. Suban 4 will be drilled to 3,200 metres, approximately 700 metres deeper than the current lowest tested gas in the structure, in an attempt to determine the depth of the gas/water contact. This well is targeted to encounter a reservoir section similar to the Durian Mabok 2 well which was drilled in mid-1999 and is located 4 kilometres to the southeast. The company anticipates completion of drilling and testing of Suban 4 to occur by the end of the third quarter.

During the second quarter, the company drilled three unsuccessful onshore exploration wells that were targeting small 'quick-connect' oil prospects in South Sumatra.

Other

On August 8th, 2000, funds were disbursed from the Corridor Loan trust accounts to fund the scheduled semi-annual loan repayment of $16 million as well as a mandatory prepayment of $33 million, and $50 million was released to the company into the unrestricted cash category. In July, in order to provide more timely access to the restricted cash, the Company received approval from the Corridor Loan lenders group to alter the terms of the Corridor Loan such that the disbursements occur quarterly rather than semi-annually. The next disbursement is now scheduled for November 8th, 2000.

Work is continuing towards a listing of Gulf Indonesia's shares on the Jakarta Stock Exchange, pending full review of the implications of new regulations recently issued by the Indonesian securities authorities.

The company's second quarter conference call will be available via live audio webcast on August 9, 2000 at 7:00 a.m. MDT (9:00 am EDT). To hear management's comments on the company's second quarter results at that time, visit Gulf Indonesia's website at www.gulfindonesia.com.

Gulf Indonesia Resources Limited, headquartered in Jakarta, is an independent upstream oil and gas company which is traded publicly on the New York Stock Exchange under the ticker symbol GRL. The company is 72 per cent owned by Gulf Canada Resources Limited which is traded on the Toronto and New York Stock Exchanges under the ticker symbol GOU.

This report contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including information about the company's progress and outcome of ongoing negotiations and proposed drilling programs and the results thereof. Although Gulf Indonesia believes that its expectations are based on reasonable assumptions, these assumptions are subject to a wide range of business risks and technical risks, including those inherent in exploration for oil and gas, and there is no assurance Gulf Indonesia's objectives will be achieved (*)