Tower Resources and its wholly-owned subsidiary Neptune Petroleum (Uganda) Limited have reached an agreement to farm out an interest in Neptune's Uganda acreage to Global Petroleum Limited, an Australian based oil company quoted on ASX and AIM.
The Farmout Agreement is subject to the consent of the Minister of Energy and Mineral Development of the Government of the Republic of Uganda. Global has the right to earn a 50% interest in Exploration Area 5 ("EA5"), northwestern Uganda, by meeting the cost of two exploration commitment wells.
Under the terms of the Farm Out Agreement, Global will earn a 50% interest in the EA5 Licence and Production Sharing Agreement (PSA) by funding the Authority for Expenditure* (AFE) cost of drilling Iti-1 (subject to a cap as detailed below), the first well of a two well program, and a second well, currently expected to be Sambia-1, when the results of Iti-1 have been interpreted.
It has been agreed that Global's funding of Iti-1 will be capped at $6.5 million in the event that drill stem testing is not justified, and $7.5 million in the event that the presence of hydrocarbons supports the need for a drill stem test program. It has also been agreed that any costs in excess of these caps will be borne by Neptune (75%) and Global (25%). There are no expenditure cap levels for the drilling of the second well. Global may, after the first well, opt not to fund the second well in which case Global may, at their sole discretion, continue with a 25% interest in EA5 or withdraw from the licence altogether.
Tower is also pleased to confirm that a Letter of Intent has been signed with ASCOM S.A Group for the provision of a truck mounted land drilling rig, an MBU-125, currently in Southern Sudan, which is rated for drilling to 2700 meters.
Neptune expects the rig to be available from February 2009 and also expects approval of the Environmental Impact Assessment in good time to meet rig availability. Neptune is also in a position to award all contracts with relevant suppliers as soon as the Farmout is completed. It remains the intention to begin drilling Iti-1 no later than March 2009.
Tullow and Heritage have recently announced a successful and significant well, Buffalo-1, in EA1 some 80 kms from the Iti-1 location, the latest in an uninterrupted sequence of seven exploration discoveries in the Butiaba area of EA1 and EA2 north of Lake Albert. Tower believes that some of these shallow discoveries are analogous to the Iti and Sambia prospects.
Tower and Global have three directors in common, Mark Savage, Peter Blakey and Peter Taylor - the latter two have significant shareholdings in both companies and Mark Savage is Tower's largest single shareholder. As such, the Farmout Agreement is classified as a related party transaction under the AIM rules. Peter Kingston and Jeremy Asher, being the independent Directors of Tower, having consulted with their nominated adviser, Blue Oar Securities Plc, consider the terms of the Farmout Agreement to be fair and reasonable insofar as its shareholders are concerned.
Tower's Executive Chairman, Peter Kingston, has welcomed the future involvement of Global Petroleum as a potential 50% partner in EA5 and also the availability of a high quality drilling rig to allow early drilling of the first exploration well on the licence.
He said: "I am delighted that Neptune is now able to drill its first well in EA5 within the target time frame. The continuing success in licences just to the south of EA5 has provided great excitement in the industry and is highly encouraging for the prospectivity in EA5".
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