The farm-out to Shell is subject to certain conditions, including obtaining the government approvals for a transfer that are required under the Concessions agreements.
Under the Shell agreement, Shell will make an initial payment to Centurion of US $15 million and will pay 50% of all future exploration and development costs for as long as they remain a concession owner. If Shell continues as a concession owner after the drilling of an initial five well exploration program, an additional payment of US $20 million is payable by Shell to Centurion. If Shell elects not to continue, the interest of Shell will revert back to Centurion. The first well in the five well exploration program was spudded on February 7, 2006.
Shell has agreed to pay additional premiums that could total up to a further US $225 million as and when specific discovery volumes and development objectives are met.
The West El Manzala and West El Qantara concessions are adjacent to each other in the onshore Nile Delta, and comprise approximately 800,000 acres. The blocks surround Centurion's 100% owned El Wastani Development Lease and South El Manzala Development Lease, which currently produce approximately 200 million standard cubic feet per day mmscf/d of natural gas and 6,500 barrels per day of liquids.
Extensive 3D seismic has confirmed several prospects and leads on the two blocks in plays that are similar to those successfully tested in Centurion's nearby development leases. Fifteen exploration and appraisal wells are planned in the 2006 capital program for the two concessions. The concessions each have an initial three year exploration term with the option to extend the exploration term by two additional three year terms.
Shell is one of the longest standing explorers in Egypt and currently participates in four other exploration concessions and ten development leases in Egypt, including an 84% interest in the North East Mediterranean Deepwater Concession.
Said Arrata, the Chief Executive Officer of Centurion, stated: "This is Centurion's first step in its strategy to target gas exports. We have always felt that it would be necessary to partner with a major oil company to carry out this strategy. We have also felt that Shell would be the ideal candidate and we believe we have made a choice that will put Centurion on the fastest possible track to monetizing potential gas resources at world prices. It is a bonus for Centurion that Shell has agreed to become our partner in the exploration and development of two concessions that we believe may become Centurion's most important concessions in Egypt. We thank Shell for showing confidence in our operating and exploration abilities, and conversely Centurion is confident in Shell's experience and abilities in the LNG business."
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