Under the terms of the Agreement, and for a period of 12 months from the date of its execution, Loon Brunei has granted an option to Nations to acquire a 50% interest in the Production Sharing Agreement signed by Loon Brunei, and QAF Brunei Sdn. Bhd on August 28, 2006 with Brunei National Petroleum Company Senderian Berhad.
In consideration for granting the Option, Nations has agreed to fund 100% of all costs and expenses of acquiring, processing and interpreting a minimum of 300 km2 of onshore 3D seismic as well as certain other costs and expenses incidental to the implementation of the work commitment. The assignment of an interest to Nations after the completion of the seismic is subject to the approval of PetroleumBRUNEI and QAF.
PetroleumBRUNEI originally awarded the PSA to Loon Brunei (90%) and QAF (10%) on August 28, 2006 (see August 28, 2006 press release of Loon) following a joint bid by Loon Brunei and QAF. In the event Nations exercises the Option and is accepted by QAF and PetroleumBRUNEI, the working interests in Block L would become Loon Brunei 40%, Nations Brunei 50% and QAF 10%. In addition if at such time less than USD20.5 million has been spent in exploring Block L, Nations will fund 100% of all exploration costs and expenses incurred until such time as that level of expenditure has been incurred.
Under the terms of the PSA the Minimum Work Commitment includes an obligation to carry out the following work during the first three years of the PSA:
- reprocess all available existing seismic data, consisting of approximately 1,500 km;
- acquire 750 line km of on-shore 2D seismic data and 500 line km of 2D off-shore seismic data;
- acquire 500 line km of off-shore 2D seismic data;
- acquire 150 km2 of offshore 3D seismic data; and
- drill a minimum of two exploration wells to a minimum depth of 2,000 meters.
By letter dated March 2, 2007, PetroleumBRUNEI, QAF and Loon have, subject to legal documentation, agreed to replace the existing 2D and 3D seismic acquisition commitment with a 300 km2 3D seismic acquisition program which is scheduled to commence in 2007.
Block L is 550,000 acres (2,253 km2) in size covering much of eastern onshore Brunei but also containing an offshore component. There has been some historic production on Block L, however, no exploration or development activities have been undertaken in this area in approximately 20 years. The giant Champion and Seria oil fields are both located within 25 km of Block L.
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