In Mauritania, Premier will acquire Fusion's 6% interest in PSC B (containing the Chinguetti discovery) and 3% interest in PSC A (containing the Banda discovery) for a cash consideration of $10 million and an overriding royalty. The overriding royalty is payable out of production revenues from all developments on these PSC's and is a production related payment on a sliding scale varying with oil prices. For Chinguetti, the value of the royalty is estimated at $5 million (net present value at 10% p.a.), or $8 million (undiscounted), at a constant real oil price of $20 per barrel. In addition, Premier will, on approval of a development plan, pay a $2 million bonus to Fusion for each new discovery resulting in a 50 mmbbl development on PSC B (excluding the existing discovery at Chinguetti) and a $1 million bonus for each new discovery resulting in a 50 mmbbl development on PSC A (excluding the existing discovery at Banda).
The Chinguetti discovery is expected to receive development consent in the next 12 months and production of the estimated 120 mmbbls of oil reserves (Premier share 7.2 mmbbls) is planned to commence in 2005/6. A multi-well drilling program covering both PSC A and PSC B is expected to begin by late 2003. There are many other attractive exploration prospects to be pursued in both PSC's.
In Gabon, Premier will acquire an 18% interest in the Iris Marin and Themis Marin offshore PSC's in return for funding its own costs and a further 18% of costs on Fusion's behalf through to the completion of the second well on each PSC. These shallow water PSC's have multiple Gamba formation pre-salt targets of approximately 20-40 mmbbls and are on trend with Premier's existing Dussafu (formerly Phenix) block.
In Saharawi Arab Democratic Republic (SADR), Premier will acquire 35% of Fusion's rights under a Technical Cooperation Agreement with the government of the SADR in return for the funding of 35% of costs incurred up to any future license award. In each license in which it chooses to participate (to a maximum of three), Premier will fund 70% of the initial exploration costs capped at $3 million and 35% thereafter. The area is virtually unexplored as it is currently under a dispute over sovereignty.
As part of this transaction, Premier has granted Fusion the right to receive a 5% interest from Premier's 100% interest in Block 2 (the Sinapa block) and in Blocks 4A and 5A (the Esperanca blocks) in Guinea Bissau, these rights to be exercised within 60 days of completion of the drilling of the next well on each block.
The agreements are subject to routine government and partner approvals.
Charles Jamieson, CEO of Premier Oil, said: 'This exciting deal with Fusion is a significant advance towards our goal of building a business in West Africa. In Mauritania we look forward to the early development of the Chinguetti and Banda discoveries and the significant exploration potential of these blocks.
The addition of two more interests in Gabon to our current Dussafu (Phenix) block increases our exposure to the highly prospective shallow water pre-salt play. This deal is an excellent example of Premier's strategy of exposing shareholders to significant added value and upside through commercial dealmaking.'
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