Suroco to Secure O&G Interests in Colombia

Suroco Energy Inc. has entered into a letter agreement dated effective July 17, 2008, for the arm's length acquisition of interest in the Suroriente Block, Arjona Field, Alea 1947 C Block and Alea 1848 A Block in Colombia (the "Acquired Interests") currently held by Alentar Holdings Inc., in exchange for 8,700,000 common shares in the capital of the Corporation at a deemed price of US$1.00 per share and 4,000,000 Contingent Value Rights. Upon completion of the Proposed Transaction, the Acquired Interests will be held by the Corporation's wholly owned subsidiary, NCT Corporacion Petrolera Latinoamericana S.L. ("NCT").

The Letter Agreement effectively amends and replaces the December 28, 2007 agreement entered into between the Corporation and Alentar for the acquisition by the Corporation of Alentar's interests in the Suroriente Block and Arjona Field in Colombia.

The Contingent Value Rights to be issued to Alentar upon completion of the Proposed Transaction will entitle Alentar to acquire one common share of Suroco for each Contingent Value Right deemed exercised. The Contingent Value Rights will contain terms such that 1,000,000 Contingent Value Rights will be deemed exercised upon the occurrence of a "Declaration of Commerciality" in either the Alea 1848 A Block or the Alea 1947 C Block, subject to a maximum of two Declarations of Commerciality per the Alea 1848 A Block and two
Declarations of Commerciality per the Alea 1947 C Block. The Contingent Value Rights will expire within ten (10) years of the date of issuance.

The Board of Directors and management of the Corporation feel strongly that the Proposed Transaction will result in a number of benefits and opportunities to the Corporation. Upon completion of the Proposed
Transaction, the Corporation will hold:

  • (a) an indirect participation of approximately 30.4% in Consorcio Colombia Energy ("CCE") (the Corporation currently holds, indirectly a 19.8% interest in CCE). CCE has a 52% participating interest in the Suroriente Block pursuant to the "Crude Oil Incremental Production Contract" it has entered into with Empresa Colombiana de Petroleos ("ECOPETROL"). The Suroriente Block (36,528 hectares) is located in the southeast sector of the Putumayo River and south by the San Miguel river on the Colombian side of the border with Ecuador. At current production rates, a 30.4% participation in CCE would entitle the Corporation to approximately 333 barrels of oil per day of production;
  • (b) an indirect participation of approximately 54% in the NCT P&G Petrotesting Consortium (the Corporation currently holds, indirectly a 35.1% interest in the NCT P&G Petrotesting Consortium). The NCT P&G Petrotesting Consortium has entered into an agreement for the exploration and production of hydrocarbons in the Alea 1848 A Block with the National Agency of Hydrocarbons of Colombia. The Alea 1848 A Block (30,660 hectares) is located northwest of the Suroriente Block in the Putumayo River Basin;
  • (c) an indirect participation of approximately 24.5% in the Petrotesting Southeast Consortium (the Corporation currently holds, indirectly a 15.9% interest in the Petrotesting Southeast Consortium). The Petrotesting Southeast Consortium has entered into an agreement for the exploration and production of hydrocarbons in the Alea 1947 C Block with the National Agency of Hydrocarbons of Colombia. The Alea 1957 C Block (23,499 hectares) is located northeast of the Suroriente Block in the Putumayo River Basin; and
  • (d) an indirect participation of 50% in the VETRA-NCT Consortium (the Corporation currently holds, indirectly a 25% interest in the VETRA-NCT Consortium). The VETRA-NCT Consortium has a 65% participating interest in the Arjona Field pursuant to the "Operational Contract for Risk Production of Discovered, Undeveloped and Inactive Fields" it has entered into with ECOPETROL. The Arjona Field (11,891 hectares) is part of the Chimichagua Block, located in the department of Cesar, in the midst of the Central and the Eastern Mountain Ranges in the Valle Inferior del Magdalena basin in Colombia. Currently, the Arjona Field is being evaluated in order toconclude a seismic campaign and determine a comprehensive development program.

Pursuant to the terms of the Letter Agreement and subject to receipt of applicable regulatory approval, the Corporation intends to acquire Alentar's interest in the Suroriente Block, the Alea 1848 A Block and the Alea 1947 C Block by acquiring the 35% of the outstanding securities of NCT P&G Corporation held by Alentar, a company incorporated under the laws of Barbados. NCT holds the remaining 65% of outstanding securities of NCT P&G Corporation.

Pursuant to the terms of the Letter Agreement and subject to receipt of applicable regulatory approval, the Corporation intends to acquire Alentar's interest in the Arjona Field by: (a) assignment of Alentar's interest in an
agreement between Alentar and NCT Estudios y Proyectos, C.A., whereby Alentar holds absolute rights to the profits or losses resulting from NCT Estudios y Proyectos, C.A.'s entire 25% participation in the VETRA-NCT Consortium; and (b) the novation of NCT into the place of NCT Estudios y Proyectos, C.A. in the agreement creating the VETRA-NCT Consortium.

Upon completion of the Proposed Transaction, one nominee of Alentar, Juan Szabo, will be added to board of directors of the Corporation. Szabo is currently a consultant to Alentar.

Szabo has 38 years of experience in the international hydrocarbon business, has been a member of the Board of Directors of PDVSA Petroleo & Gas, Pequiven S.A. and Citgo Petroleum and has held the following executive positions: Chief Financial Officer of Petroleos de Venezuela S.A., President of Corporacion Venezolana del Petroleo and Executive Vice-President of Exploration and Production of Petroleos de Venezuela S.A. After retiring from Petroleos de Venezuela S.A., Mr. Szabo has acted as advisor to several national and international corporations.
 



 

 

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