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Shell Elects Not to Exercise Option on Senegal

Source: www.gulfoilandgas.com 8/24/2009, Location: Africa

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Shell Exploration Company B.V. (Shell) has advised First Australian Resources (FAR) of its decision not to exercise an Option in respect of Sangomar Offshore, Rufisque Offshore and Sangomar deep Offshore Blocks (“Licences”) in Senegal, West Africa.

The decision by Shell follows the completion of a Shell funded CSEM Data Acquisition and Geophysical Evaluation Programme over part of the Licence Area where a number of drilling prospects have already been identified by FAR and its partner Petrosen.

Shell is required to deliver a technical report resulting from the Geophysical Evaluation Programme no later than 21 September 2009 at which time further details will be released.

Following Shell’s decision, FAR will be paid US$3 million within ten business days and in addition recoup approximately $US0.5 million in past expenditures.

FAR will retain its 90 percent interest in the Licences and Petrosen will hold the remaining 10 percent. FAR will continue as Operator and retain full authority to use the technical report and CSEM data for all purposes including the purpose of seeking an alternative farm in partner.

FAR is now free to commence discussions with other potential farmin partners and to facilitate this process will seek an extension to the current Licence period that expires on 22 November 2009.

Background To Deepwater Programme Offshore Senegal
The Licence in respect of Sangomar Offshore, Rufisque Offshore and Sangomar Deep Offshore, was issued in July 2004. FAR farmed into the Licence area in January 2006 by contributing to a 2,050 square kilometre 3D seismic programme. In November 2008, FAR was granted a one-year extension to the current exploration term.

During the first quarter 2009, FAR concluded an Agreement with Shell to conduct a CSEM Data Acquisition and Geophysical Evaluation Programme and increased its interest in the Licences (aggregating 7,491 square kilometres) to 90 percent and assumed operatorship. The CSEM acquisition was completed on 26 May 2009 and was followed by processing and evaluation performed by Shell with a technical report to be delivered by 21 September 2009.

Senegal Exploration Summary
- Deep water play with significant hydrocarbon potential in the Senegalese portion of the productive Mauritania-Senegal-Guinea Bissau Basin.

- The offshore Licenses cover an area of 7,491 sq km over the shelf, slope and basin floor, with potential multiple untested plays in a proven hydrocarbon system.

- A 2086 sq km 3D acquired during 2007 highlighted Multiple Santonian age fan systems with stacked amplitude anomalies, and a very large Albian to Neocomian shelf edge closure adjacent to a Turonian oil source rock kitchen.

- Excellent fiscal terms by world standards.

- FAR (Operator) is partner with Petrosen (National Oil Company). The northwest African margin remains relatively under-explored.

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