The Chari-Ouest concession area of approximately 8,200 square kilometers lies in the centre of the Doba Basin adjacent to discoveries and production managed by Exxon Mobil and with access to pipeline infrastructure. The Largeau concession is a highly prospective area approximately the size of the United Kingdom in Central and Northern Chad.
Following forced relinquishment by major oil companies under the terms of licence provisions, the permit areas were returned to the Chad authorities and subsequently awarded to Energem after a competitive tender and negotiation process. The successful acquisition was as a result of the joint efforts of the Company and a third party arm's length agent.
The concession permit agreement was entered into between the Company's subsidiary and the Government of Chad on October 16, 2004 and confirmed by Presidential Decree No. 600/PR//NP/04 on December 8, 2004.
The exploration permit is granted for a period of five years and renewable for two further three year periods, subject to the Company satisfying a number of conditions relating to an exploration program, the areas subject to permit reducing by 50% after the first five years and a further 25% of the original surface area after the first three year renewal period.
During the period the Company is required to explore for oil and related products and in the event that a discovery is made, and subject to the submission of a plan for development, including delineation of any discovery surface area, the Company may, subject to Government approval, which may not be withheld without justified reason, be granted a concession for the commercial development of the relevant area for 25 years, renewable for a further 25 years.
The financial terms for the permit are as follows: US$6 million - paid to Government 15 days after signature of the permit. This payment has been met. US$4 million - payable to Government June 30th, 2005. US$6 million - payable to Government 18 months after signature of the permit. US$7 million - Agent's fee (this may be partly payable by issue of Energem shares and is subject to final negotiation with the Agent). A further US$21 million becomes payable to Government on commencement of production from any discovery but which, at the option of the Chad Government, may be paid from oil revenues. In addition, surface taxes of approximately US$1.3 million per annum are payable. These taxes will reduce by 50% in accordance with the relinquishment stipulations of the permit after the initial five years and at the end of the subsequent three year period, by a further 25%.
During the first five-year period the Company's obligations in terms of the permit are that it will conduct certain data evaluation, seismic and exploration work.
In the course of the granting of the permit, the Company was required to demonstrate its financial and technical capacity to deliver into these commitments for exploration and development. The Company, mainly as a result of its association with a number of strategic alliance partners, including PetroChina, was able to satisfy these requirements.
The Company has the right to engage and include development partners to act in consortium under the permit.
The Company is engaged in the pursuit of up-stream oil opportunities in a number of African countries with the Chad permit having now been secured.
Through 51%-owned subsidiary company the GulfofGuinea Petroleum Corporation Inc. (GGPC), the Company is focused on the commercialization plan for the East Orovinyare (EOV) oil field in Gabon, to which a production sharing agreement has been secured, and in securing two other similar projects in the Gulf of Guinea region.
In light of the acquisition of the 100%-held Chad permit and the advanced stage of the EOV commercialization plan, the Company is at an advanced stage in negotiations for increasing its equity ownership in GGPC with a view to pooling GGPC's up-stream oil activities with those wholly-owned by Energem, such as Chad, and separately listing an up-stream oil subsidiary company controlled by Energem to fully focus up-stream oil activities in a dedicated Africa focused vehicle for the exploitation of up-stream oil opportunities.
In commenting on the Chad permit award, President and CEO of Energem Tony Teixeira stated:
"The award of the Chad permit is a substantial step forward in our up-stream oil development and adds considerable value to our asset portfolio together with what we already manage through GGPC. The potential separate listing of these up-stream oil interests in a dedicated vehicle is a further extension of our long term strategy in African resources which, in the up-stream oil area, is a strategy which started in July 2003 with the acquisition of our interest in GGPC."
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