Alange announced that as part of its strategy to focus on production growth and optimization of assets in the portfolio, it has entered into a strategic partnership with YPF S.A. YPF is a large regional player in the energy sector, and this partnership enables the Company to realize value and gain future upside potential from certain of the Company's assets in the Catatumbo Basin in Colombia. The Company's strategy to joint venture was previously announced in a press release dated January 19, 2011. The partnership marks YPF's entry into Colombian land operations and provides an indication of the value of Alange's portfolio.
The partnership encompasses three agreements under which Alange Energy will:
Farm-out an interest in the Carbonera E&PC to YPF for a total work program of $23 million (100% working interest). Alange Energy will retain a 36% beneficial working interest in the property. YPF will fund up to $23 million of the exploration and capital program costs over the next three years including Alange Energy's share; this includes the costs associated with the acquisition of 3D seismic and drilling of one exploratory or development well in 2011. As well, an application will be submitted to the ANH requesting that YPF become the operator of the Carbonera E&PC. This agreement is subject to ANH approval.
Farm-out interests in the Catguas E&PC to YPF for a total work program that could reach $100 million over the next three to five years (100% working interest). The Company currently has a 50% beneficial working interest in the Catguas A Northern area and a 15% beneficial working interest in the Catguas B Southern area. Pursuant to the agreement, YPF will assume a 35% interest in the Northern area and a 10.5% interest in the Southern area and will pay $5 million cash to Alange Energy. Under certain conditions, the Company has the option to increase its working interests up to an additional 10% in the Northern area and 5% in the Southern area. This agreement is subject to ANH approval.
Explore further business opportunities with YPF pursuant to a Memorandum of Understanding for joint exploration and development of the Company's interests in Rio Magdalena, Santa Cruz, Cerrito, Carbonera La Silla, Arrendajo and five of the blocks awarded to the Company in the ANH 2010 Open Round, namely VMM 35, VMM 11, VSM 12, VSM 13 and COR 33.
Commenting on the farm-out agreements with YPF, Luciano Biondi, the Company's Chief Executive Officer, stated, "We are very pleased to be partnered with a strong regional player who brings technical capabilities and financial stability to explore and develop these assets. As we have previously indicated, the oil and gas assets of Carbonera and Catguas are high quality assets and with YPF's focus we have the opportunity to realize value from the development of these assets for our shareholders, an ideal partnership scenario."
The Company also announced that it is continuing its discussions with several parties in connection with investment opportunities to joint venture, farm out or dispose of its interests in certain of its other assets. The Company's capital allocation program is designed to generate improved returns on investment from the core portfolio.
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