Oilex Ltd announced that it has agreed to sell a 10 percent participating interest in the Cambay Production Sharing Contract (PSC) incorporating its Tight Hydrocarbon Project (Cambay Project) in Gujarat, India to Magna Energy (Magna) for a total payment of $4 million. Magna also has an option to acquire an additional 5 percent interest for a total payment of $2 million. These payments will include the working interest share of the 2013/14 Cambay work program and budget and the value of the corresponding share of moveable property included in the joint venture books.
Under the terms of agreement, the funds received would be applied towards the proportion of the cost to drill the Cambay-77H horizontal well that relates to Oilex’s current 45 percent participating interest in the PSC. Based on the gross estimated well cost of Cambay-77H of approximately $13 million, it is anticipated that up to 100 percent of Oilex’s share of the costs will be covered by the funds from Magna.
The Cambay-77H well will be the second multistage fracture stimulated horizontal well drilled in the Cambay Project and is designed to confirm the applicability of North American technology for development and production of tight hydrocarbon resources in India.
Unless otherwise mutually agreed, in the event that certain conditions, including the approval of the Government of India have not been satisfied or, where applicable, waived prior to May 1, 2014, the parties have agreed that the initial payment(s) will, to the extent practicable, be converted into shares in Oilex. The issue of shares will be limited to 19.9 percent of the enlarged issued capital of Oilex at that time, with any balance of the investment not satisfied in shares
Shareholders will be asked to approve this transaction at an upcoming general meeting. A deposit of $200,000 will be paid at signing with the balance of the $4 million consideration for the sale of a 10 percent working interest being payable 10 business days after the later of shareholder approval or Oilex’s non-operating joint venture participant, GSPC, not exercising its pre-emptive right within 30 days. Further details of the transaction will be outlined in the notice of meeting to be issued by the Company.
Oilex retains operatorship and a minimum of a 30 percent equity interest in the Cambay PSC, if the additional 5 percent equity interest option is exercised, corresponding to independently certified 2C Contingent Resources of 50 million barrels of oil equivalent (boe), of which approximately 50 percent is gas. In addition to the Government of India approval, the transaction is subject to certain other conditions, including joint venture pre-emption rights.
The Cambay field is located in one of the most prolific petroleum provinces onshore India. It is close to existing pipeline and industrial infrastructure and represents an important growth asset for Oilex with the potential to generate near term production and cash flows in a location where energy market fundamentals are attractive. Recently, the Government of India announced the likely increase in the domestic gas price to approximately the equivalent of $8 per million British Thermal Unit (MMbtu) during 2014 to encourage further investment in development of local gas resources.
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