The consideration will be satisfied mainly by the issue of shares in Nautical valued at the average closing price for the 10 trading days following this announcement. Further consideration of US$400,000 in shares is contingent on DTI approval of the drill ship, secured to drill two wells in early 2007, following ongoing discussions between Engen and a rig contractor. A cash production bonus of US$1 million will become due after 5 million bbls have been produced from either field. Engen retains a 1.5% carried interest in both blocks.
Prior to this transaction, Engen had been involved in confidential discussions and has agreed heads of terms to farm-out interests in these two licenses to a third party (the “Engen Farmout”). Engen has the right to farmout a 48.5% interest in Bluebeard and a 20% interest in Skipper in exchange for the third party contributing 97% of the costs of an appraisal well on Bluebeard as well as their pro-rata share of costs on Skipper. Nautical is encouraging successful completion of the Engen Farmout prior to completion of the Nautical acquisition, though the Nautical acquisition is not subject to the Engen Farmout.
The Bluebeard discovery is directly east of the Mariner discovery (Nautical 26.67%) and has been tested by both the 9/12-3 and 9/12b-6 (1985) wells that flowed 144 bopd (18° API) and 728 bopd (19° API), respectively, from the Tertiary Maureen Sand. The discovery is in close proximity to oil transportation facilities with capacity to take additional throughput.
The Skipper discovery lies immediately to the east of the Nautical-operated Selkie and Kelpie Prospects (8/25a). A field development plan (FDP) was submitted to the DTI in 2005. The discovery well (9/21-2) was drilled in 1990 and encountered a 50-foot oil column in the Paleocene Dornoch Formation.
The un-risked net contingent oil resources attributable to Nautical with and without the Engen Farmout are as follows, according to an independent competent persons report (CPR) commissioned by Engen in 2006:
Nautical will review the in-place volumes on Skipper using its proprietary 3D seismic survey acquired in 2000 leading to an independent update on the Engen CPR. Nautical will also review the Engen proposed development plans and seismic interpretation for Bluebeard.
“This transaction secures further significant reserves adjacent to our current prospects and discoveries,” said Steve Jenkins, Nautical’s chief executive. “The potential oil rig slots would enable near-term drilling activity on the Bluebeard discovery at minimal cost to Nautical. We wish to continue the good work carried out by Engen and anticipate an acceleration of activity resulting in early production.”
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