CEPSA Colombia S.A., a wholly-owned subsidiary of CEPSA, has signed a Purchase and Sale Agreement with Hupecol Caracara LLC, an affiliated entity of Houston American Energy Corp., to acquire the Caracara Block, located to the south of the Los Llanos Basin in central Colombia.
This deal fits into the key targets set out in CEPSA's 2008-2012 Strategic Plan as regards its upstream activities, which earmarks roughly $1,800 million in order to slightly raise the current level of crude oil reserves and production. Specifically, the development phase of the Caracara Block, with a considerable level of output, will enable CEPSA to offset declining production in other more mature acreages.
The Caracara Block measures approximately 47,200 hectares and its present output exceeds 20,000 BOPD, with estimated proven and probable (2P) reserves of 40 million barrels. This prospect additionally offers significant growth potential through new investments in both development and exploration.
CEPSA will ultimately become the operator of the Block, governed by an Association Contract system, in which the Company will have a 70% interest, as soon as all the regulatory approvals are granted by both the National Hydrocarbons Agency and the state-owned oil company ECOPETROL, which holds the remaining 30% of the concession.
CEPSA's focus on oil & gas production is a key component of its strategy to strike a more equitable balance in earnings contributions from its different business segments to overall results, assigning between 25% and 30% of its capital expenditures to this area, which provided 22% of cash flow in 2007.
CEPSA has made a staunch commitment to boost its upstream activities in Colombia in recent years, which has materialized in the acquisition of stakes in various permits, mostly in the exploration phase, thereby consolidating an attractive portfolio of assets. The Company currently has 8 contracts located in the Upper and Middle Magdalena River Valley and in the Los Llanos Basin, the majority operated by CEPSA.
CEPSA's production in Colombia amounted to 253,000 barrels in 2007, with attributable reserves of over 1 million barrels. The acquisition of the Caracara Block will lead to a substantial increase in the Company's reserves in Colombia and especially in its production. The geographical location of the Caracara prospect, near the Los Llanos blocks where CEPSA already has interests, will deliver major synergies, both in exploration and production. Furthermore, this deal will provide greater visibility to CEPSA's operations in Colombia, through significant production and reserves, creating a solid springboard for future growth.
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