In April 2005, Black Rock acquired through farm-in a 50 percent. non-operated equity interest from Kappa in the 249,000 acre Las Quinchas Association Contract located in the Middle Magdalena Valley of Colombia and entered into a joint operating agreement (the "JOA") with Kappa. Subsequently in September 2005, Black Rock also agreed to farm-in to the Alhucema Exploration & Production (E&P) Contract.
As previously announced on 21 September 2006, the construction of the facilities on the Arce Oil Field required for the agreed steam injection testing program had commenced. The long-term test was expected to be completed in approximately 6 months.
Black Rock also announced that Kappa had advised the company that it expected to start drilling a further 2 exploration wells, Acacia Este and Chicala Este, in the Las Quinchas Block before the end of this calendar year. This has now been delayed and Kappa has recently stated that rigs are being sought for the first quarter of 2007. Subsequently, Black Rock received a number of cash calls from Kappa for various activities, only some of which had been fully approved and documented by Black Rock.
Black Rock paid US$1 million to Kappa in respect of the undisputed items of expenditure. The company subsequently challenged the validity of a number of the remaining cash calls, which the Directors of the Black Rock have been advised had not been issued in accordance with the terms of the JOA. In particular, Black Rock challenged those cash calls in respect of expenditure for operations that are not expected to be carried out until 2007. Without notice Kappa Energy Colombia Ltd then issued a default notice to Black Rock, which issued a comprehensive rebuttal of the disputed cash calls and the validity of the default notice.
Black Rock has commenced proceedings in Colombia to protect its Colombian assets and to prevent Kappa taking any further unilateral action that might prejudice the company's interests until such time as the disagreement over the cash calls and works program has been resolved between the company and Kappa in accordance with the JOA's agreed procedures.
Black Rock is working diligently with its advisors and intermediaries to resolve this disagreement and has made a number of requests to meet with Kappa, although to date, Kappa has not made any response to Black Rock's request to meet.
A further announcement will be made in due course.
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