The Company's President and CEO, George T. Stapleton, II stated, "MegaWest has now completed its first significant step towards becoming a non-conventional oil and gas resource exploration and development company by completing the acquisition of the Deerfield and Chetopa Prospects. MegaWest intends to acquire large blocks of oil and gas rights known to contain substantial deposits of heavy oil. Through delineation drilling and the completion of pilot production tests, we plan to establish proven and producing reserves on these development projects using thermal recovery technologies developed in Canada."
Pursuant to a letter of intent with Deerfield Energy LLC ("Deerfield"), MegaWest USA entered into an asset purchase agreement with Deerfield Energy Kansas Corp. ("Deerfield Kansas"), a wholly owned subsidiary of Deerfield, in respect of the purchase of all of the assets of Deerfield Kansas in respect of the Chetopa Prospect. The purchased assets include certain items of equipment and fixed assets and interests in two oil and gas leases in respect of 392 acres. The purchase price for the assets was 250,000 restricted common shares in the Company's capital and the Company's release of Deerfield from its obligations to the Company in respect of a promissory note in the amount of US$500,000.
The Company believes that production from the Chetopa Prospect can commence within three months. The drilling of additional steam injection patterns can be funded from the Company's existing cash reserves or cash generated from successful production of the initial production. MegaWest USA purchased all of the surface equipment at the Chetopa Prospect at a significant discount for future use. The Chetopa Prospect provides a potential means for achieving early initial production at minimal expense while finalizing the demonstration project at the Deerfield Prospect.
MegaWest USA has also completed the acquisition of all of the issued and outstanding membership units of Deerfield, whose remaining assets included the Deerfield Prospect in Vernon County, Missouri, covering 7,620 acres with the opportunity for the Company to acquire up to an additional 10,000 acres. MegaWest USA has acquired a 100% working interest in the development agreements in respect of the Deerfield Prospect subject to a 20% royalty and all of the issued and outstanding shares of Deerfield Kansas for consideration of US$800,000 and 4,750,000 restricted common shares of the Company. At closing, MegaWest paid US$500,000 of the purchase price to the sellers. Owing to potential issues related to certain development agreements, the balance of the cash purchase price and all shares have been placed into an escrow account. Pursuant to the escrow agreement the shares and cash will be released on a pro-rata basis based on either the modification of certain development agreements into oil and gas leases or until 4,000 acres of replacement acreage have been leased.
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