Africa Oil and the Puntland State of Somalia have entered into amending agreements modifying the terms of the existing January 17, 2007 Production Sharing Agreements made in respect of the Dharoor Valley Exploration Area and the Nugaal Valley Exploration Area. The revised agreements were signed by the parties in Garowe on December 8, 2009 and the amending agreements were ratified by the parliament of the Puntland State of Somalia on December 23, 2009.
With the conclusion of the negotiations and the execution of the amending agreements, the Production Sharing Agreements, as amended, now provide for initial exploration periods in respect of both blocks that have been extended from 36 months to 48 months with a revised expiry of January 17, 2011. In addition, the terms of the exploration programs have been amended so that Africa Oil can, at its option, drill one exploratory well in each of the Nugaal and Dharoor Valley Exploration Areas, or two exploratory wells in the Dharoor Valley.
In consideration of the extension of the exploration period, Africa Oil agreed to voluntarily relinquish twenty-five percent of the original agreement area on or before January 17, 2010 and has agreed to pay a US$1 million bonus within 30 days of a commercial discovery in each of the production blocks. Africa Oil also agreed to certain enhanced abandonment and environmental safety measures and to make a one time US$ 1,050,000 payment to the Puntland government for development of infrastructure.
Africa Oil President and CEO, Keith Hill, commented, "We are very pleased that we have been able to come to a mutually beneficial agreement which will allow us to recommence operations in our Puntland, Somalia blocks. Our plan is to immediately commence operations with an intent to spud the first exploration well by mid-2010. We consider these blocks to have world class exploration potential and to be a continuation of the prolific Yemen rift system."
Africa Oil is an exploration focused company based in Canada with ongoing operations in Kenya, Ethiopia and Somalia. The Company is currently drilling an exploration well in Block 9 in Kenya and has recently completed a seismic acquisition program in the Adigala Block in Ethiopia. The rift basins of East Africa on which the company has acquired over 200,000 square kilometers of gross acreage are highly under-explored and analogous to recent major discoveries in the Albert Graben in Uganda. The Company plans an aggressive exploration seismic and drilling program to evaluate this potential in the next two years.
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