Petrolia Farms Out Canadian Land Lease

Petrolia announced the signing of a farmout agreement in the amount of $20 million with an oil company. This amount will be invested in exploration and development work in the Bourque property, located 50 km northwest of the town of Gaspe in Quebec. This property comprises four leases whose area represents 4.8% of the total surface area of leases in which Petrolia holds interests. The first phase of work includes a three dimensional (3D) seismic survey covering 60 km2 as well as the drilling of a well about 3,000 metres deep. Seismic lines are currently being opened, to provide the required access for the seismic acquisition equipment and sources. Petrolia is the operator for this project.

Geological context

Many types of geological structures can contain hydrocarbons; amongst these, recifal structures make some of the best known reservoirs. A reinterpretation of vintage seismic data suggests the presence of such reefs under the Bourque property, along a 20 kilometre trend. If the geological conditions are favourable, these giant structures have the potential of containing considerable quantities of hydrocarbons.

During the Devonian period, the Gaspes region was close to the Equator and the environment was favourable to the development of reef complexes. It was during this same period that the reef complexes of the Western Canada Sedimentary Basin developed. In 1947, the discovery of the enormous Leduc oilfield, which produced more than 100 million barrels of oil, was a turning point for the oil and gas exploration in Alberta, Since that time, several significant discoveries have been made in this type of trap in Alberta.

Terms of the agreement

In order to earn a 70% interest in the four leases of the Bourque property, the Oil Company shall, without Petrolia's financial participation, spend $20M during the next five years according the following terms:

  • During the coming 18 months, the Oil Company shall spend a minimum of $2.5M in a seismic survey, to secure its right to participate in this agreement;
  • During the coming three years, the Oil Company shall invest an amount of $8M in exploration work to earn a 24% stake in the property;
  • During the coming five years, the Oil Company may increase its stake to 48% by investing a cumulative amount of $16M, or increase its stake to 70% by investing a additional $4M for a total amount of $20M;
  • In consideration of the $20M investment, the Oil Company may be reimbursed up to $6M which will be taken from Petrolia's production revenues;
  • Royalties of 5.5% are payable on the production from these four leases;
  • For the duration of this agreement, Petrolia will act as the operator under the oversight of a bipartite executive committee.


Petrolia's strategy

"The agreement is of vital importance for Petrolia not only if you consider the amounts invested, but especially because of the considerable oil potential associated with this type of trap. The discovery of hydrocarbons in such a context would open wide the door to oil exploration in the Gaspes Peninsula," reports Andre Proulx, President of Petrolia.

By forming joint ventures to develop its properties, Petrolia is aiming to share the risks related to this kind of investment while taking advantage of its partners' expertise. This joint venture also makes it possible to limit the issuance of new shares while maximizing exploration work on Petrolia's leases.


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