Strike Secures Option over Cadlao Field Offshore Palawan
Strike has secured an option over the Cadlao oil field in the Republic of the Philippines.
- Strike has secured an option to acquire an 80% interest in the Cadlao oil field ("Cadlao"), with remaining 2P Reserves of 6.3 million barrels. Past oil production from the field in the offshore Palawan Basin, Philippines, has totalled 11 million barrels.
- Acquisition of the Cadlao interest provides the potential to increase Strike's oil/gas Reserve inventory four fold, provide early production and deliver substantial cash returns.
- First oil production is scheduled in the fourth quarter of 2010 (potential initial rate in the order of 5,000 to 10,000 barrels per day).
- Acquisition cost: A$4.68 per barrel 2P oil Reserves with consideration linked in part to production performance.
- Due diligence is well advanced with the option to be exercised on or before January 31, 2010.
- Acquisition of the Cadlao interest is the first step in the implementation of a strategy to build Strike's exposure to near term conventional oil production to complement its growing position in unconventional gas in the Cooper Basin.
Cadlao Oil Field
The Cadlao oil field is located 50 kilometers offshore Palawan, Philippines, and is 100% held through Service Contract 6 (Cadlao) by unlisted Australian public company Blade Petroleum Limited ("Blade"). Venture Oil Inc, a Philippines registered company, holds a right to acquire a 20% interest.
The field was previously operated by Amoco and produced 11.1 million barrels between 1981 and 1991. A more recent 3-D seismic survey revealed additional structural detail including the potential for undrained oil.
These Reserves provide a four fold increase to Strike’s existing oil and gas Reserves inventory. An early production development program is proposed which would see oil production commencing in the fourth quarter of calendar 2010 at an initial rate in the order of 5,000 to 10,000 barrels per day, delivering substantial cashflow to Strike.
The project is covered with 15 years remaining on a Service Contract (similar to a Production Sharing Contract, or PSC) providing project tenure until 2023. The project approval process is well advanced and a Plan of Development was approved in July 2009 by the Republic of Philippines Department of Energy.
The Acquisition Option
Strike has secured an option to acquire 100% of the issued capital of Blade in consideration for the payment of up to A$20 million, comprising:
- An initial payment of A$10 million through the issue of 33 ⅓ million Strike shares at A$0.30 per share to acquire 100% of Blade.
- Further performance payments of up to A$10 million in cash or Strike shares (at Strike’s election), payable in two tranches:
- The first tranche of A$5 million to be paid upon Strike receiving free cashflow from Cadlao totalling A$10 million; and
- The second tranche of A$5 million to be paid upon Strike receiving free cashflow from Cadlao totalling A$20 million.
- Any Strike shares issued as part of the performance consideration will be valued at the 5 day VWAP prior to the performance hurdle being met
Due diligence is underway. The option term expires on January 31, 2010. The proposed transaction provides a low cost acquisition for Strike. Under the terms of the transaction 2P oil Reserves are being acquired for US$4.20 per barrel (A$4.60 per barrel).
Potential Low Capital Expenditure Development
Strike and Blade believe that low capital expenditure ("capex") development options are available and commercial discussions to this end have commenced. Capex exposure can be further limited by a range of financing options. Strike will have the opportunity to review the outcome of some of these dealings before deciding whether to exercise the option to acquire Blade ensuring that Strike is only committed to proceed with the acquisition on a manageable basis.
Strike Energy's Managing Director, Simon Ashton, said, "The deal gives us exposure to a substantial reserve base and a subsequent production hike during 2010 which will add to our existing production from the US and provide a favourable balance to our existing Australian exploration opportunities."
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