With the agreement, Ramshorn will reacquire 100% of the EPA assets, which include the five Colombian oil and gas exploration prospects, Guayabillas, Puma, Guariquies, Alamo and Zeus.
Pursuant to a recent management initiated strategic review of Solana's wide ranging asset portfolio, the Board of Directors reconfirmed its commitment to Colombia and identified a number of high value assets to be the strategic focus of the business. These higher value assets represent the best risk/reward ratio and are generally characterized as having:
--Solana as the operator --Solana at a high working interest --Solana not promoted --Attractive fiscal terms
Integral to this strategy is moving non-core assets out of Solana's portfolio, allowing capital and human resources to be focused on these higher value assets - located in the Llanos, Putumayo and Catatumbo basins.
Financial - This disposition results in changes to entitlements under the EPA but is otherwise for zero consideration. However, Solana will receive US $3.2 million for the outstanding balance of an escrow account established to guarantee its share of the Guariquies-1 long-term test and Guariquies-3 drilling costs. An additional US$0.2 million is expected in post closing adjustments relating to EPA capital and revenue adjustments to December 1, 2006. Solana will also receive 100% of its share of Puma-1 completion costs (estimated at US$1.4 million dollars) from 50% of Ramshorn's operating profits deriving from any potential Puma production. Solana is entirely relieved of its obligation to fund 48% of the Zeus-1 exploration well where Solana's remaining exposure was estimated at US$10.5 million.
Reserves & Resources - No reserves have been allocated to the EPA assets since the commencement of operations in December 2004. Guayabillas and Alamo have been drilled and abandoned, Puma and Guariquies are being tested and Zeus remains to be drilled.
Work Program - Solana will participate in six higher value wells and acquire 320 km(2) of 3D seismic over the next six months - completely with existing capital resources.
Financial Statements - Solana follows the full cost accounting method for its capital expenditures and held a book value of US$25 million for the disposed assets. Pursuant to Canadian GAAP rules Solana will most likely incur an impairment adjustment of close to this full amount. No profits have ever been recorded in respect of the divested assets.
Solana's Board is confident that this reassessment of the Company's portfolio will both relieve a number of stringent financial obligations and focus attention on higher potential value exploration areas.
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