PetroNova Inc, a company engaged in the exploration and development of oil and natural gas resources in Colombia, is pleased to announce that its indirect wholly owned subsidiary, PetroNova Colombia Inc, has entered into a farm-out agreement (the "FOA") with a wholly owned subsidiary of Pacific Rubiales Energy Corp for the exploration and potential development of PetroNova's operated Tinigua exploration and production contract awarded by the Agencia Nacional de Hidrocarburos of Colombia (the "ANH"). PetroNova currently owns 90% of the rights to the Tinigua Contract indirectly through PetroNova Colombia.
Antonio Vincentelli, President and CEO of PetroNova, commented, "The Tinigua prospect is one of the largest unexplored prospects in Colombia and the highest impact prospect in PetroNova's portfolio, with best estimate unrisked Prospective Resources of approximately 159 million barrels. This agreement enables PetroNova to develop the Tinigua prospect with minimum additional financial commitments until the commercial phase. We are looking forward to working with such a prominent Colombian oil and gas exploration and production company to determine the potential of the Tinigua prospect."
Key terms and conditions
Pursuant to the terms of the FOA, Pacific Rubiales will pay PetroNova Colombia a cash consideration of U.S.$12.5 million for back-costs associated with the Tinigua Contract, and will carry the cost of drilling, completing, and testing of up to four wells for up to U.S.$33 million to earn a 50% participating interest in the Tinigua Contract.
Pacific Rubiales will assume up to U.S.$19 million of Pacific Rubiales' and PetroNova Colombia's share of the capital and operational expenditures for the first and second exploratory wells to be drilled in the Tinigua Contract area, of up to U.S.$12 million and up to U.S.$7 million, respectively.
Should Pacific Rubiales refrain from exercising its right of withdrawal after the first exploratory well, Pacific Rubiales will assume up to U.S.$7 million of Pacific Rubiales' and PetroNova Colombia's share of the capital and operational expenditures for each of the third and fourth exploratory wells to be drilled in the Tinigua Contract area (the "Additional Carry Obligation"). PetroNova Colombia's share of the Additional Carry Obligation will be repaid to Pacific Rubiales by PetroNova Colombia out of 50% of PetroNova Colombia's corresponding production share from the Tinigua Contract.
During the last phase of the exploration period of the Tinigua Contract, Pacific Rubiales shall have, at its sole discretion, the option to be designated the operator of the Tinigua Contract. If Pacific Rubiales elects to become the operator, Pacific Rubiales will pay PetroNova Colombia an additional one-time consideration of U.S.$4 million.
The Joint Operating Agreement negotiated corresponds with The Association of International Petroleum Negotiators' 2002 model Joint Operating Agreement and reflects a balanced condition of the parties according to the participating interests in the agreement.
Closing of the transactions contemplated by the FOA is subject to customary closing conditions, including the receipt of ANH approval.
Tinigua exploration and production contract:
The Tinigua Block is 105,471 gross acres in size and is located in the northern portion of the Caguan-Putumayo Basin. The Tinigua prospect is a large fault propagation fold structure, with an aerial extension of approximately 15 km2 confirmed by 109 km2 of 3D seismic. Petrotech Engineering Ltd. prepared an independent resource assessment report for PetroNova effective February 28, 2013 (the "Petrotech Report") in which the Tinigua prospect was assigned a total best estimate (P50) Prospective Resources of approximately 159 million barrels of heavy oil. The Petrotech Report was prepared in compliance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the COGE Handbook.
PetroNova Colombia has been granted an environmental license for the Tinigua Block to drill up to twenty exploratory wells from five different platforms and install surface facilities required to conduct the extended testing if required.
The first exploratory A3 well is expected to spud in the second half of 2014 and will target both the tertiary Mirador Formation as well as the Cretaceous age Macarena Group with a total depth of approximately 6,500 feet.