Northern has signed an agreement with its partners Teredo Oil Limited and LOCS Oil Company of Spain that Northern will be the Operator at Ayoluengo.
For a consideration of US$112,500 to Repsol Investigaciones Petroliferas S.A., a wholly-owned subsidiary of Repsol YPF ("Repsol"), Northern has purchased a 45% share of the Ayoluengo oil field (Spain's only onshore oil field) and the surrounding Lora concession in the Sedano Basin about 280km north of Madrid and only a few kilometers off the Burgos to Santander road. Oil from the field receives a high price being sold as crude to be blended and burned by local industry. Gross annual revenue for the entire field in 2001 was estimated at US$1.226,000 at the prevailing oil prices with an unaudited net operating profit of US$195,000 but with the higher oil prices received a significant improvement is predicted for the year 2002.
The contract was signed on June 11th 2002 and approval of the transaction has now been published in the BOE (State Official Publication) number 297/02 showing ministerial order 3132/2002 from 25th November 2002. Following fulfillment of all contractual obligations the management of the field was taken over on 23rd December 2002.
Northern has worked on this acquisition together with Windsor Petroleum Inc, partner in the nearby Valderredible and Huermeces Permits. Under a service agreement Windsor will share equally in the costs and profits realized by Northern. The purchase includes the oil processing facilities, tanks, offices and the freehold land on which they stand, together with substantial related equipment and stocks.
The Ayoluengo oil field is located in the Lora permit next to Northern's recently awarded Valderredible permit. The field is currently producing about 165 to 180 barrels of oil per day from 11 wells. Sufficient quantities of gas are produced to generate the power required to run the operations. It is hoped to increase gas production further to generate additional power that can be sold into the national grid.
Derek Musgrove, Managing Director of Northern Petroleum, said: "This agreement provides us with a strong position in northern Spain, where we already hold the neighboring Valderredible permit. The workover rig, tanks, oil field base and water disposal system will be of great assistance when next year the company effects plans to re-drill and produce at Huidobro, an old oil discovery on the Huermeces permit and the 1960s oil discovery at Huidobro , and it is even possible that the southern flank of Huidobro extends into the Lora concession."
Mr. Musgrove added: "We have identified a number of areas for saving of operating costs and will immediately implement that programme now that transfer of ownership has occurred. We also are examining the potential to drill lateral re-completions into areas of the Ayoluengo field that remain undrained. In the meantime, the existing crude production will be a significant factor in the achievement of one of Northern's goals, namely that of achieving a substantial income stream. The Lora, Huermeces and Valderredible permits offer attractive potential in the oil prone Sedano Basin astride two main anticlinal ridges. It is an area where the 1960's Operator, Chevron, identified further prospects still undrilled. In the longer term Northern is working on a deeper extensive gas play which is considered of great potential."
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