The Agreement requires Tekoil, as the Farmee, to pay $250,000 to Ptarmigan, which will be used as a drilling deposit to secure a one year extension granted by the Canada - Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB). The Agreement also requires Tekoil to drill an onshore-to-offshore exploration test-well in 2007 ("Phase 1"), which will test an offshore structure, and as the validation well, will extend the lease until January 2011. Tekoil will earn a one-third interest (33.3%) in the License for the completion of Phase 1. Tekoil will then conduct an offshore 3D seismic program ("Phase 2") by late 2008, to map in more detail four offshore features already identified by Ptarmigan using 2D seismic data, which will earn Tekoil a further 26.7% of the License, for a total ownership of 60%.
Tekoil and Ptarmigan then plan to drill an offshore exploration well ("Phase 3") and will share the drilling costs; 60% Tekoil and 40% Ptarmigan. Should Tekoil carry 100% of the Phase 3 drilling expenses, they will earn an additional 20% interest in the License, for a total of up to 80%, subject to government royalties. Tekoil estimates the total cost of Phases 1, 2 and 3 to approximate $6,000,000 in 2007, $10,000,000 in 2008, and $25,000,000 in 2009.
During the term of the Exploration License, and upon discovery by drilling of hydrocarbons that are deemed commercial, the License holder has the exclusive right to apply to the C-NLOPB for a Significant Discovery License (SDL). Current regulations on SDL's allow the SDL grantee to hold the SDL without term at an accelerated rate of annual rentals. The holder of the SDL further has the exclusive right to apply for a Production License for the SDL at any time following the granting of the SDL. The License covers approximately 140,000 hectares or 346,500 acres of offshore surface area, is located in the shallow waters of the Gulf of St. Lawrence, and is strategically positioned close to the markets of eastern Canada and the northeastern United States.
Mark Western, Tekoil's Chairman and CEO, stated: "We have been looking at options in western Newfoundland for some time, and have identified Ptarmigan Resources as the partner of choice in the Province. Their technical capabilities are excellent, and they have a strong team of leaders in their respective fields. The License, though exploratory in nature, appears highly prospective, and offers what we now believe is one of the best exploration opportunities in the region."
Dr. Christopher Pike, President and CEO of Ptarmigan, stated how pleased he is on behalf of the shareholders of Ptarmigan, to have achieved this significant milestone in the development of the petroleum potential offshore western Newfoundland. He noted the strong complementary relationship that Ptarmigan and Tekoil have already established, and looks forward to a strengthening of the partnership as the exploration program set out in the Farmout Agreement develops.
Houston-based Tekoil & Gas Corporation is a technology-driven company focused on the development, acquisition, stimulation, rehabilitation and asset improvement of small to medium-sized oil and gas fields.
Ptarmigan Resources is a privately held, junior oil and gas explorer headquartered in St. John's, Newfoundland and Labrador. Ptarmigan was founded in 2001 and in 2002 bid on and was awarded 100% interest in Exploration License 1069 by the Canada - Newfoundland and Labrador Offshore Petroleum Board. Ptarmigan also holds an interest in four other C-NLOPB offshore Exploration Licenses in the Gulf of St. Lawrence through its 8% ownership in NWest Energy Inc. Ptarmigan's technical team is especially focused on the Cambro-Ordovician carbonates and clastics in the foreland basin to the west of the Appalachian Mountains in Newfoundland.
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