Falkland Oil and Gas (FOGL) announced Tuesday that it has executed a farm-out agreement with Italy's Edison International in relation to its licenses around the Falkland Islands in the South Atlantic.
Edison will farm in and earn a 25 percent interest in FOGL's northern area licenses, in return for which it will contribute a pro-rate share of the costs of the 2012 drilling program – comprising two exploration wells.
Edison will also farm in and earn a 12.5 percent interest in FOGL's southern area licenses and will contribute to the 2012 work program.
Meanwhile, Edison has agreed to pay its pro-rate share of certain historical costs incurred by FOGL during 2011 related to the 2012 drilling program. Edison's share of these costs is expected to be around $50 million.
Edison will also make a separate cash contribution to FOGL of $40 million: $20 millionon completion of the farm-out agreement and a further $20 million in 2013.
FOGL said that it now expects to receive the Leiv Eiriksson (UDW semisub) rig in July following the completion of drilling of Borders & Southern's Stebbing well in the South Falkland Basin.
Commenting on the deal, London-based Merchant Securities' oil analyst Brendan Long said: "The farm-out will increase the financial flexibility of Falkland Oil & Gas and reduces the risk of funding constraints."
Alluding to the recent diplomatic offensive taken by Argentina relating to oil and gas drilling in the Falkland Islands, Long also pointed out that "this farm-out partner brings European political support and a potential European market for liquefied natural gas sourced from the Falklands" particularly in the light of French energy giant EDF's recent acquisition of a controlling interest in Edison.
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