Sky Petroleum noted that on December 31, 2009, Buttes Gas and Oil Co. International, Inc., the wholly owned subsidiary of Crescent Petroleum Company International Limited and operator of the Mubarek field, provided Sastaro Limited, Sky Petroleum's wholly owned subsidiary, written notice that Buttes had unilaterally and solely determined that the Mubarek field had reached the end of its economic life.
Buttes also notified Sastaro that the Concession Agreement, dated December 29, 1969, between the His Highness Sheikh Sultan bin Mohamed Al-Qassimi III, The Ruler of Sharjah, UAE and Buttes with respect to the Mubarek field was terminated. Buttes states that it has handed over the Mubarek Field operations and facilities to representatives of H.H. The Ruler of Sharjah on December 28, 2009.
As a result of these events, Buttes has notified Sastaro that the Mubarek Field Participation Agreement, dated May 19, 2005, between Sastaro and Buttes, is terminated. Under the terms of the Participation Agreement, Sky Petroleum, through Sastaro, contributed $25 million in drilling and completion costs related to two in-fill wells, H2 and K2-ST4, for the right for Sky Petroleum to participate in a share of their future production revenue.
The Mubarek field wells H2 and K2-ST4 continues to produce commercial amounts of oil, and Sky Petroleum believes that there is significant residual value in H2 and K2-ST4. Consequently, Sky Petroleum considers the Participation Agreement valid and in good standing.
Management is evaluating its rights under the Participation Agreement and will take any and all actions required to protect the interests of Sky Petroleum, its shareholders and its investment in the Mubarek field.
Finally, Sky Petroleum has been assured by Crescent that its share of the production revenue from the December 2009 lift will be paid promptly upon receipt of the respective sale proceeds.
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