Vast Exploration has signed a Hydrocarbon Exploration and Production Contract (the "E&P Contract") with the Agencia Nacional de Hidrocarburos of Colombia ("ANH") for oil and gas exploration block PUT-03 (the "Block"). The Block was successfully won by the Company during a bid round held on June 22, 2010, in Cartagena, Colombia (the "Bid"). The Company has also agreed to farm-out a 90% interest in the Block to wholly-owned subsidiary of Sagres in consideration for the Company retaining a 10% carried interest during the first exploration phase (the "Carried Interest"), which phase shall consist of a minimum expenditure of US $12.9 million over a 36 month period.
The block has an area of 148,000 acres (gross) and is located in the Putumayo Basin of Columbia. The Block offers exploration upside on a structural trend with existing discoveries, and is situated strategically between two blocks (CAG-6 and PUT-09 ) awarded to Pacific Rubiales and Talisman Energy, respectively.
The Block carries a royalty of 7% payable to the Government of Colombia in addition to the basic royalty scheme established under Colombia Law, being 8% for up to 5,000 bopd and increasing to 25% for a 600,000 bopd field. All other terms of the contract are standard to the model Colombian E&P Contract. Sagres will have an option to acquire the Company's Carried Interest in the Block over the next twelve months at a price to be mutually agreed.
In 2010, Vast entered into a Letter of Intent with a private company ("Ontario Co."), whereby it would be granted a 90% interest in the Block in consideration for paying to Vast a fee of US $50,000, taking responsibility for 100% of the costs of the first exploration phase and reimbursing Vast for all expenses of the Bid and granting Vast the Carried Interest (the "LOI"). Ontario Co. was subsequently acquired by Sagres.
The transaction may be considered a Non-Arm's Length Transaction pursuant to the policies of the TSX Venture Exchange because Vast and Ontario Co. had a common officer, Ahmed Said, at the time the terms of the LOI were negotiated. Vast and Sagres are arm's length parties. Closing of the transaction remains subject to all requisite approvals, including without limitation, approval of the TSX Venture Exchange.
Ahmed Said, President and Chief Executive Officer of Vast stated, "We are pleased with the successful award in Colombia. The Carried Interest provides our shareholders with additional upside potential, without committing additional capital and while keeping our strategic focus on our primary asset in Kurdistan."
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