Chaco Acquires Stake in Middle Magdalena Block

Chaco Resources plc

Chaco Resources plc has signed a farm-in agreement with Fenix Oil and Gas SA to earn a substantial interest in the Fenix Block, a 24,117-hectare area located in the Middle Magdalena Basin of Colombia.

Chaco will earn a net 48.75% interest in this block by paying 100% of the cost of a 3D seismic survey of approximately 100 km2 during the phase 1 period of 18 months and drilling one exploratory well to approximately 8,000 feet in the phase 2 period of 14 months. The operator of the block is Fenix Oil and Gas SA. Chaco is fully funded for the phase 1 commitment. Monies are currently held in escrow by Banco de Credito in Bogota, Colombia.

The assignment of interest to Chaco by Fenix under the farm-in agreement is subject to approval by the relevant Colombian government authority, Agencia Nacional de Hidrocarburos ("ANH"). This approval has been formally requested and is now being processed.

The Middle Magdalena basin lies between the eastern and central ranges of the Andes mountains and has been a prolific producer of oil over many years with discovered reserves of approximately 1.9 billion barrels of oil and 2.5 TCF of gas in over 41 distinct fields. The Fenix Block is located in a thrusted section of the basin that is structurally complex, and is on trend with some of the most significant discoveries in the area. Recent renewed exploration success in the basin by other operators has been largely due to the application of modern 3D seismic technology and enhanced structural modeling techniques which have enabled the accurate mapping of complex structures.

An existing well in the Block, La Tigra 10, currently shut in, has produced over 30,000 barrels of 23°API to 33°API oil during testing and intermittent production since 1969. This well will be one of a number of existing leads to be detailed by the new 3D seismic survey.

John Wardle, CEO, said:

"We are very excited by this new opportunity which gives Chaco exposure to a third very prospective basin in Colombia. An active petroleum system in this structurally complex basin has generated large volumes of oil but the difficulty in the past has been to properly delineate potential trapping structures using 2D seismic. Now that modern 3D seismic, coupled with structural modeling techniques are being used, the discovery ratio has improved significantly. We are confident that our extensive 3D survey in phase 1 will confirm a number of high potential targets, the best of which will be drilled in phase 2."

Giles Clarke, Chairman, commented:

"This agreement is a sound illustration of the direction the new board is taking this Company. We are focusing on working up lower risk opportunities aiming to deliver significant medium term cash flows through strong high level relationships in Colombia.

"Our new partners in this block have a wide experience in both the oil and gas and industrial sectors in Colombia, which, in combination with our team's experience will enhance the efficiency of the project. We look forward to working with them to explore this outstanding block. The board believes this new relationship has important potential for Chaco."


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