Gale Force Petroleum and Derby Resources (collectively, the "Farmors") have announced the signing of a farm-out agreement. According to the terms of the agreement, the Farmee, who will remain confidential, may earn up to 50 percent interest in the Kentucky Shale Gas Property, currently comprised of 22,000 acres, 9 existing wells, gathering lines and two compressors in Eastern Kentucky, by paying for a series of staged development programs.
The primary goal of the farmout is to increase and accelerate natural gas production and revenues generated from the current Kentucky Property and adjoining leasing opportunities. The initial development program, estimated to cost $400,000, will begin in the spring of 2009 and will focus on the completion of some of the existing nine wells. For paying the completion of the existing nine wells, the Farmee will earn a 60% interest before payout in these wells.
Additional development programs will be pursued at the Farmee's option later in 2009 and in 2010. For newly drilled wells, the Farmee will earn a 75% interest before 1.5 times payout. The Farmee, at its option, may spend up to $2 million on the programs, upon which it will back in to earn a 50% interest in the Kentucky Property.
There is consistent natural gas potential across the Kentucky Property and low-cost, low-risk drilling for the Devonian Shale target, with more than 200 prospective drilling locations immediately adjacent to the existing infrastructure. The Devonian Shale is consistently 250 feet in thickness on the Kentucky Property, with a predictable natural gas production profile.
The Kentucky Property forms part of the oldest producing petroleum system in the United States. The Devonian Shale plus Middle and Upper Paelozoic system in the Appalachian Basin together contain 31.4 Tcf of technically recoverable natural gas, with estimates of an aggregate 550 Tcf natural gas in place, according to the US Geological Survey. Within the system, there are 15,000 wells drilled to or through the Devonian Shale in Eastern Kentucky alone.
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