Pennant Energy Inc. has signed a Letter of Intent with Silver Spirits Inc., a private Alberta company, to undertake certain exploration activities and analysis of Silver Spirits lands located in the Fort Saskatchewan Field area, east of the City of Edmonton in Township 54 Range 22W4.
The Fort Saskatchewan Field produces mainly natural gas from various formations including the Mannville intervals, Ellerslie and Ostracod and shallower Viking reservoirs. Pennant will undertake to analyze all available data covering the Silver Spirits land and carry out additional geochemical surveys at its sole expense, with the objective of identifying drilling locations for natural gas and/or oil potential to the base of the Mannville formation depth. Silver Spirits holds 2 sections of land in this relatively undeveloped area of the field; one section offsets an abandoned Ellerslie formation gas well which produced in excess of 1 billion cubic feet of gas. Pennant, by undertaking the work commitment will earn the option to enter into a formal Farmout Agreement (the "Agreement") to drill a test well on the Lands.
The terms of the Agreement will call for Pennant to pay for 100% of the costs to drill and case or abandon the test well, to earn a before payout (BPO) working interest (WI) of 100% in the drilling spacing unit subject to a 7.0% gross overriding royalty (GORR) on oil and/or gas and 65% WI in the balance of the acreage; at payout of the test well, Silver Spirits will have the option to convert the GORR to a 35% WI.
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