Terrace Adds Acreage in Texas
Terrace has acquired interests in several oil development projects in Texas.
The Company's newly incorporated wholly owned subsidiary, Terrace Cutlass LLC ("Terrace"), has entered into an agreement with Lightning Oil Company, of San Antonio Texas ("Lightning"), under which Terrace was granted the right to earn an 18.75% net revenue interest ("NRI") in certain oil, gas and mineral leases covering 3,395 net acres in the Dimmit and LaSalle Counties, Texas.
In order to earn the NRI, Terrace has agreed to pay 27.78% of all costs, including acreage leases, prospect fees, site preparation and drilling, until the completion of three wells and thereafter 25% of all costs. Terrace's obligations under the agreement are subject to the prior acceptance of the agreement by the TSX Venture Exchange (the "Exchange").
Terrace estimates its initial financial commitment under the agreement to be approximately US $2.2 million relating to the lease payments, prospect fees and infrastructure costs covering 1,342 net acres (the "Dimmit County Acreage") plus its share of the drilling costs for the first well on the Dimmit County Acreage payable when Lighting gives notice that it has made a commitment to commence drilling. Terrace expects that drilling of the first well will commence in March 2012.
Upon completion of the drilling of the first well, Terrace may, following a technical evaluation of the first well, choose not to participate in any further well development on the Dimmit County Acreage, in which case it will forfeit all its right, title and interest in and to the entire project and the agreement will terminate.
If Terrace concludes that completion of the first well is warranted, its share of the costs to complete and place the first well into production are estimated to be approximately US $700,000. Terrace is also required to pay its share of the drilling and completion costs of the second well on the Dimmit County Acreage, at an estimated cost to Terrace of US $1.9 million, in order to earn its interest in that acreage.
In addition, after the drilling and technical evaluation of the first well on the Dimmit County Acreage, Terrace will have the right to exercise its option to earn an 18.75% NRI in the remaining 2,053 acres (the "LaSalle County Acreage") at a cost of approximately US $3,750,000, representing its share of lease payments, site preparation and drilling costs of two wells on the LaSalle County Acreage, in order to earn its interest in that acreage.
Lightning will be the operator of the project with technical and operational input from Terrace's technical personnel.
The Company has reached agreement with Whittier Energy Company of Houston, Texas ("Whittier") to purchase all of Whittier's leasehold interest in approximately 14,400 gross acres (3875 net acres) in LaSalle and McMullen Counties, Texas. Whittier's interests to be acquired by the Company vary slightly across the acreage, averaging a 26.88% Working Interest and a 20.16% NRI.
The Company will form another wholly owned Texas subsidiary to enter into the agreement with Whittier. The subsidiary's obligations under the agreement will be subject to the prior acceptance of the agreement by the Exchange.
The purchase price for the acquisition is US $1.0 million with an effective date of October 1, 2011. There are no existing wells on the acreage. The operator of the project has proposed an initial test well to be spud before year-end 2011 at a net cost to Terrace of US $1.06 million. Terrace will have the option to participate in the proposed initial well; however, failure to participate will result in the forfeiture of approximately 957 net mineral acres (25% of the acquired interests).