"Revus is embarking on an extensive exploration program estimated at NOK 1.2 billion over the coming two years. To support this unprecedented level of activity for a company of its size, we are very pleased to announce this agreement with DnB NOR. This facility will give us the right to efficiently fund a major portion of the exploration expenditure with debt as the exploration program develops," said Harald Vabo, CEO of Revus Energy.
Revus' exploration program consists of 12-16 wells over the coming two years, with seven to eight wells planned for 2007. The drilling rig Bredford Dolphin contracted by a consortium of Revus and six other oil companies will play an important role in this exploration program and is due to start drilling the Lie prospect in production license 305 later in this quarter.
This exploration program planned for 2007 and 2008 is expected to find 110 million barrels of oil equivalents in new reserves on a risked basis. In terms of value, Revus expects to spend approximately NOK 10 per share with the potential to create NOK 80 per share in risked value.
In 2005 the Norwegian State implemented a new incentive to increase exploration activity on the Norwegian Continental Shelf. The tax value of exploration costs will be refunded in cash, though limited to the annual income tax loss in the company. The cash refund will be paid to the companies after the Oil Taxation Office has made its tax assessment for the preceding tax year, normally in December. Revus has been looking to bridge the gap between incurring exploration expenses and receiving such tax refunds with bank financing. With security in such tax refunds banks are now in a position to fund exploration activities through this new type of debt. A change in the Petroleum Tax Act, with effect from January 1, 2007, allows pledge in the tax refund, though a refinement to the law change, now being considered, is needed to give lenders perfected security.
The facility will give Revus the right to fund a major portion of the exploration expenditure with relatively inexpensive debt. With perfected security in the state tax refund in place the costs of this loan will be cheaper than traditional bank debt and much cheaper than debt raised in bond markets. The exploration loan for an individual tax year will then be repaid with cash proceeds from the tax refund received in the following year. Having signed the Term Sheet, the facility is conditioned upon a final Loan Agreement between DnB NOR and Revus. The Loan Agreement will include pledges in the tax refund, as well as covenants customary to facilities of similar nature.
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