Pacific Rubiales has signed a letter of intent with Les Etablissements Maurel & Prom S.A. ("M&P") pursuant to which the Company has acquired a 50% working interest in the exploration contract (the "Contract") for Block 116 (or Lote 116) located in northeastern Peru.
The block has an area of 6,600 km2 covering most of what is known as the Santiago sub-basin, in the western-most area of the Maranon basin. Geologically, Lote 116 is located in the Peruvian Andean Foothills, a structurally complex and minimally explored area, that has important hydrocarbon potential in Paleozoic, Cretaceous and Tertiary rocks. The most recent oil discovery in Peru, the Situche Central-1X well by Talisman Energy, is located just 100 km to the northeast. The main Peruvian pipeline, the "Oleducto Norperuano" passes through the central part of the block.
Ronald Pantin, Chief Executive Officer, commented, "This joint venture is yet another crucial step in the strategic alliance with M&P which was initiated earlier this year by the acquisition of a 49.999% interest in M&P Colombia. We look forward to strengthening this alliance and shall continue to look at opportunities to come together in South America."
The transaction is structured as a farm-in whereby the Company will assume a full carry obligation of up to US $75,000,000, which is initially intended to cover the first and second wells of the Contract. This carry obligation of US $75,000,000 is subject to the Company's right to receive a reimbursement through cash flows derived from future hydrocarbon production from the block. In addition, M&P shall have the right to recover its sunk costs from future cash flows, which have been estimated at US $7,800,000. The Company will be transferred operatorship of the block. The transaction is subject to government and regulatory approvals, as well as legal and financial due diligence to the Company's satisfaction.
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