The equity to be earned by Chaco remains at 25% and the Company's earn-in obligations - to fund the first phase program up to a maximum of US$7.4 million - are unchanged.
The Company has been advised that the Colombian Government has changed the name of the block from "Guara" to "Platanillo".
Ecopetrol, which is the operator of the Platanillo Block, has already started to look for an appropriate rig to re-enter and test the Alea 1 discovery well in the block. Ecopetrol is hopeful of obtaining a suitable rig to commence these operations by the end of the first quarter of 2006.
The Company also advises that the Colombian Government has announced its intention to reduce the rate of corporation tax from 38.5% to 28.5%, a reduction of more than one third, subject to ratification during 2006.
Directors Standing Down
The Company also announced in October that Dr Tom Elder and Lee Graber (together "the Former Directors") had agreed to stand down as directors of the Company when Graeme Stephens joined the board. As compensation for loss of office, the Remuneration Committee of the Company has agreed that the Former Directors would continue to benefit from their original options that were granted to them on December 17, 2004, giving them the right to acquire 1,000,000 Ordinary shares in the Company at a price of 2.16 pence per share until 17 December 2009. A new form of option was therefore executed which allowed this benefit to continue. No other compensation or remuneration was granted on the termination of their directorships on September 30, 2005.
Changes to composition of Committees of the Board and Non-Executives
As a result of the departure of Tom Elder, the composition of both the Remuneration and Audit Committees has changed. Jon Pither continues to chair the Remuneration Committee and is joined by Martin Groak. The Audit Committee will now consist of Martin Groak (Chairman) and Jon Pither.
Following Graeme Stephens' appointment as Technical Director, Doug Jendry has reverted to non-executive.
Chaco Resources Plc is the successor company to Gold Mines of Sardinia Plc. In 2004, the Company changed its name and its strategy to one of pursuing hydrocarbon exploration and development opportunities in South America, focusing initially on Paraguay. Two local companies, Amerisur SA and Bohemia SA, were acquired for shares whereby Chaco obtained preliminary rights to a total of approximately 4.7 million hectares held under three applications. Two of the three applications covering approximately 2.3 million hectares were subsequently granted as Exploration and Production concessions and the third is still in process. For various reasons, the country has seen comparatively little exploration activity to date, but it is of interest due to commercial extraction of hydrocarbons having been made in adjoining countries from hydrocarbon basins which extend into Paraguay. All the historical seismic data relative to the applications was purchased at the time of the acquisitions and is currently being re-processed using modern computers and analytical programs. On completion of this first phase, the Company plans to review its strategic options in terms of doing further seismic work and/or initiating a drilling program. The Company's stated intention is to bring in farm-in partners for this second phase.
Chaco was subsequently introduced to opportunities in Colombia, where a fundamental change in the fiscal laws and an overhaul of the state's management of hydrocarbon exploration and production permits created a very favorable investment environment. Chaco teamed up with strategic joint-venture partners who have many years of experience operating in Colombia and through whom it has been seeking to participate in exploration and production (E&P) concessions.
On October 3, 2005, the Company announced a joint venture with Repsol to exploit the Alea field in the Putumayo whereby the Company could earn a 25% equity share in a project containing a discovery well that had been capped in 1988, but which had flowed at 533 barrels per day. Although Ecopetrol was operator of the block, they were not initially party to the farm-out to Chaco.
On November 21, 2005 announced its second deal: a consortium, in which the Company could earn a 54% equity interest, had been granted an exploration and production contract over the Puerto Lopez Oeste Block.
The Puerto Lopez Oeste block was the second of three applications submitted. The third is highly competitive and the Company is keeping details confidential at this point. Under current legislation, where an entity holds a Technical Evaluation Area permit ("TEA"), in the event that another party submits a development budget for all or part of that area, the TEA holder must match the budget within 30 days or lose its rights over the block(s) in question. If the TEA holder does not contest the third party's application, the hydrocarbons ministry (ANH) will consider whether the third party meets its criteria for a suitable applicant. The ANH has up to 60 days to deliver its verdict. It is in this context that the Company has been submitting development budgets for blocks in existing TEA's through its partners. The 30 day response period relating to the third application is due to expire in approximately two weeks.
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