PetroMagdalena has finalized the contract to farm out 30% of the Santa Cruz Block to a private Colombian investment fund as previously announced on August 25, 2011. The investment fund will earn a 30% participation in the block for a carry of 60% of the first exploratory well and 45% of the second exploratory well to be drilled. PetroMagdalena will retain a 70% working interest and remain as operator. The Santa Cruz Block is located in the Catatumbo Basin in Colombia and neighbors the producing Rio Zulia field, which has a cumulative oil production of approximately 180 million barrels.
Luciano Biondi, the Company's Chief Executive Officer stated: "We are very pleased to announce the completion of this farm out agreement as it frees up approximately US $7 million of funding in this year's budget, which will be put towards the expanded work program at Cubiro. We look forward to sharing updates on the development work at our producing Petirrojo field in the Cubiro Block later this quarter, as well as the exploration drilling at Yopo."
All permits have been obtained at Santa Cruz and the location for the first exploratory well is currently under construction. PetroMagdalena has also contracted a 1500 HP drilling rig and plans to commence drilling in mid-November of this year. The cost of drilling the well is estimated to be approximately US $12 million, of which the Company's share will be approximately US $5 million. The completion of this farm out agreement minimizes the Company's capital expenditure commitment for the Santa Cruz Block, while maintaining the benefits from a potentially significant new discovery.
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