South Marsh executed a certain Amended and Restated Participation Agreement on December 8, 2006 with Ridgelake Energy, Inc. and GulfX, LLC.
Under the terms of the Amended and Restated Participation Agreement, South Marsh acquired the right to earn Working Interests in the Leases.
To earn its interest in the leases, South Marsh reimbursed Ridgelake a portion (calculated as 133.33% of the Working Interest for each lease) of certain past costs (Sunk Costs), and thereafter must meet that same portion of the costs of drilling to casing election point and in the case of OCS-G 27089 and OCS-G 27091, meet certain additional costs.
Under the terms of the Purchase and Sale Agreement, Entek USA Inc. will receive 50% of the proceeds (attributable to Velocity Oil & Gas Inc.) from the sale or other disposition of oil, gas or other hydrocarbons produced from or otherwise allocable to the Leases, after deduction of any royalties and other burdens on production there from, until the Sunk Costs plus interest calculated on the Sunk Costs to 31st October 2007, are fully recovered. Net proceeds from a lease shall be applied to the Sunk Costs plus interest with respect to such lease until such payments equal the Sunk Cost plus interest for such Lease.
Consequent on the disposal of these assets, Entek will write off approximately US$742,000 in capitalized costs.
This rationalization of the Company's portfolio was made having considered:
--Each leases prospect risk profile versus potential return in the event of exploration success.
--Working Interest position and ability to farm out exploration risk exposure.
Commenting on the divestment, Entek's Chairman Mr. Russell Brimage said "the sale of these interests is simply a consolidation of the Company's portfolio in the Gulf of Mexico. Entek remains focused on growing its interests in this region and will continue to acquire blocks in which it can secure strategic working interests enabling farm-out of the exploration risk, as well as participate in the drilling of low risk prospects."
The blocks included in the sale are SMI 152 – 15%; SMI 138 – 11.25%; HI A307 – 10%; VK79 – 105; and VR317-10%..
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