Falcon Oil & Gas has entered into an amendment to its April 10, 2008 Production and Development Agreement with Exxon Mobil Corporation affiliate ExxonMobil Hungary (Mako) Limited ("ExxonMobil") and MOL Hungarian Oil and Gas Plc. ("MOL").
Under the Amendment, the parties agreed to three principal matters: (1) the parties have agreed to use reasonable efforts to combine their respective exploration licenses and mining plots to form one unit consisting of all or part of the Mako Trough; (2) if ExxonMobil and MOL elect to proceed to the Appraisal Work Program, the parties agree to expand the area where wells may be located and apply a portion of the US $100 million Appraisal Work Program expenditures basin-wide in a combined work program, based on the optimum locations from a technical basin-wide appraisal standpoint; and (3) if ExxonMobil and MOL elect to proceed to the Development Work Program, the parties agree to apply 50% of the US $75 million payment due to Falcon to the same expanded basin-wide area in a combined work program.
Amendment to the PDA
Background to the PDA: As a result of the extensive technical data developed by Falcon, on May 22, 2007 the Hungarian Mining Authority granted to Falcon a production license, which covers a significant part of the Mako Trough. A substantial portion of the remaining adjacent area in the Mako Trough is covered by licences, which are held by MOL and currently operated by ExxonMobil. On April 10, 2008, Falcon announced the entering into of the PDA among Falcon, ExxonMobil and MOL, covering a part of the Production License (the "PDA Area"). ExxonMobil is the contract operator of both the MOL Area and the PDA Area.
The Amendment addresses three principal matters:
Under the Amendment, a portion of the US $100 million expenditures which ExxonMobil and MOL will be committed to spend in Phase II for drilling wells and related expenditures, will now be applied on the basis of the optimum well locations from a technical appraisal standpoint. Specifically at least one well will be drilled on the PDA Area, with a minimum expenditure of US $25 million and a maximum of US $40 million. The balance of the US $100 million (the "Appraisal Program Balance") will be applied to wells either on the PDA Area or within the MOL Area. All seismic and technical data resulting from the Appraisal Work Program from both the PDA Area and the MOL Area will be shared among the parties.
The parties will analyze all such data, discuss well locations, the combined work program and related expenditures through the three companies' joint Operating Committee, however, the final decision on location of such wells shall be an ExxonMobil/MOL decision.
Marc A. Bruner, Chairman and CEO of Falcon, stated, "We are pleased to enter into the amended terms with ExxonMobil and MOL. The Mako Trough is potentially an enormous resource, and Falcon regards these modifications to the April agreement as a significant step forward in optimizing the ultimate development of Falcon's assets. All parties have a single common goal, and will greatly benefit from a combined work program."
Update on drilling program in the Mako Trough
Falcon is pleased to announce that the Foldeak 1 well is expected to spud in January 2009 with the purpose of testing the hydrocarbon potential of the Szolnok formation as part of the Initial Work Program in the PDA Area. This well is located approximately 1000 meters from the Mako 6 well.
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