As part of Loon's obligation, it will undertake a 20 km2 3-D seismic program and will drill a minimum of four wells (3 exploration wells and 1 development well) on drill-ready prospects. Kappa's existing producing property within the contract area, the Abanico Field, will be excluded from Loon's earning arrangement.
A part of the minimum drilling obligation Loon will drill a development project targeting a proven gas deposit of 1-3 Bcf. This gas deposit, already-delineated by 3 wells currently producing from deeper horizons, is expected to provide Loon with near term cash-flow from the Colombian venture.
Three exploration wells will be drilled during the course of 2005 targeting potential recoverable reserves of 30 Bcf of natural gas, 100 million barrels of oil and 120 million barrels of oil respectively. One of the large reserve potential oil prospects is located approximately nine miles to the west of the Guando Field (120 million barrels of oil recoverable).
Loon and Kappa, as part of their arrangement, will be working up additional prospects on the Abanico Association Contract area and will also be targeting prospects on Kappa's other undeveloped lands in Colombia. They will also form a strategic partnership and jointly work toward securing additional exploration and development projects elsewhere in Colombia.
Kappa is a registered acreage holder and operator in Colombia and has been actively exploring and producing in Colombia for seven years. In addition to having one of the largest acreage positions in Colombia (approximately 800,000 acres), Kappa owns and operates three drilling rigs thereby ensuring timely and cost effective drilling operations. Kappa currently produces approximately 3,000 boepd in Colombia and is the operator of six exploration and production contracts.
The terms of the Abanico Association Contract provide that Ecopetrol, the oil and gas company owned by the government of Colombia, has the option to acquire a 50% interest, pro rata from Loon and Kappa, by paying 50% of the capital costs incurred prior to the exercise of the option.
The board of directors of Loon has approved the transaction subject to the completion of final technical due diligence and financing.
Colombia has a stable government, no currency restrictions and an established infrastructure and service industry. More than fifty companies have operations in Colombia including Nexen, Talisman, British Petroleum, Occidental Petroleum, Lukoil, Chevron-Texaco, Exxon-Mobil and a number of intermediate-sized companies such as Petro-Santander and Petrobank. Colombia currently produces approximately 580,000 boepd, more than half of which is exported - primarily to North America.
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