Leni Gas & Oil reported that in relation to the completed acquisition of Compania Petrolifera de Sedano S.L. ("CPS"), the Company today announces that following a review of the potential of the existing Exploration acreage, the 50% interest in these licences within the Junta de Castilla y Leon in the Province of Burgos in Spain, covering the permits "Huermeces, Valderredible and Basconcillos H", have been increased to 85% through a farm-in agreement with Tethys Oil A.B. of Sweden.
Leni Gas and Oil retains an 85% equity interest in the licence permits, covering an acreage of 662 sq.kms surrounding the production Ayoluengo field, with proven gas and oil discoveries. The previous Operator estimated the discovered mean reserves at 13 mmboe, however it is necessary to undertake a full assessment of the Exploration licences to identify all prospects and associated volumetrics.
The Company has agreed with Tethys Oil A.B. in exchange for the additional equity, to cover their 15% costs of an agreed Preliminary Exploration & Appraisal Program during the next 12 months, which shall undertake a full geological re-interpretation and historical well analysis of the area, in order to develop a full identification of prospects in the area with relative volumetrics and chance of success.
The Company has agreed with Tethys Oil A.B. at completion of the Preliminary Exploration & Appraisal Program, all prospects proposed to be explored or developed will be subject to the normal joint venture conditions, wherein, Tethys Oil A.B. shall either cover their 15% equity share of all activity, or have the option to decline involvement in which case their equity will be assigned to CPS, who then shall retain 100% equity interest in the licences.
The Company proposes to execute an extended well test on the shut-in Hontomin 2 well in the Huermeces permit, at an estimated cost of EU60,000, in order to appraise the future long term production of the well, and to determine the optimum exploitation plan for the reserves in the Hontomin asset which the previous Operator estimated at mean 2mm bbls. Hontomin 2 was drilled by Chevron in the 1960s and produced an average of 113 bbls/d during exploration drilling which only penetrated the flank of the structure. The oil production equipment required to test Hontomin 2 has been ordered and will be commissioned during the next quarter.
The Company also proposes to re-enter the Tozo 1 well in the Basconcillos H permit in order to test prospective gas bearing zones, and develop the asset for near term production. The current estimated cost of this re-entry is EU617,000, however the Company aims to reduce this proposed expenditure through redesign of the well entry program. The Tozo wells which were drilled in the 1960s and encountered oil saturated sandstone at shallow depths of less than 500 metres, and an un-tested potential gas bearing zone.
In addition, the Company has decided to extend the validity period for the Huermeces and Valderredible licences, for an additional three years, to January 2011. The Basconcillos H licence is valid until June 2010.
David Lenigas, Executive Chairman, commented, "This increase in our position of the CPS exploration licences in Northern Spain is another significant milestone for the Company.
"The completion of this agreement builds upon our recently increasing production from the Ayoluengo Field, and specifically increases our position in the surrounding exploration permits allowing CPS to undertake a full re-interpretation and analysis of all prospects in the acreage. The exploration acreage has a number of historical oil and gas discoveries and CPS aims to identify both near term and long term developments to increase our production position in Northern Spain."
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