Brownstone and Quetzal Energy have entered into an assignment agreement with private company, Fenix Energy, to acquire 100% of Fenix's interests in the Canaguaro Block in the Llanos basin, Colombia. Fenix has the rights to acquire 50% of the Block in an agreement signed with TAUREX-CONDOR Exploration Inc.
Under the agreement between Fenix and TAUREX-CONDOR being assigned to Brownstone and Quetzal, Brownstone and Quetzal, as to 50% each (net 25% Brownstone and 25% Quetzal), can earn the 50% interest in the Block by paying 62.5% of the first US $10,000,000, and 50% of the balance of the cost to drill the Canaguay 1 exploration well on the Block. In addition Brownstone and Quetzal will contribute to 50% of the US $5,000,000 sunk costs by paying US $750,000 on execution of a Definitive Agreement with the balance of US $1,750,000 to be paid from their share of production. They will pay a 6% overriding royalty and a one-time success fee based on the first year's average production of the Canaguay well to CONCORCIO CANAGUARO.
The success fee will be based on the Canaguay 1 well's first year's average production (if successful), and will be due 50% by Brownstone and 50% by Quetzal, in the aggregate amount of (a) Nil for less than 350 bopd; (b) US $500,000 for 351 to 500 bopd; (c) US $1,000,000 for 501 to 750 bopd; (d) US $1,500,000 for 751 to 1,000 bopd; and (e) US $2,000,000 for production in excess of 1,000 bopd. (All bopd rates are aggregate production rates on the Canaguay 1 well, if successful.)
The Canaguaro block totals 9,754 hectares and is offset by several oil fields (including Cusiana, Cupiagua, Santiago and Corcel) and oil and gas infrastructure, including pipelines and roads. The block was acquired by CONCORCIO CANAGUARO / CleanEnergy Lta. and the E&P Agreement was signed with the ANH on June 12, 2006. The block was subsequently farmed out to TAUREX-CONDOR.
Brownstone and Quetzal will be entitled to 50% (Brownstone 25%; Quetzal 25%) of any net revenue. Work commitments over the first 36 month phase total approximately US $15.5 million.
The initial well location (Canaguay 1) is based on a 42 square km 3D seismic program completed by TAUREX-CONDOR in 2009.
The Canaguaro Block is approximately 25km south from the BP Santiago de las Atalayas block, which contains the Cusiana and Cupiagua fields producing approximately 18,000 and 36,000 bopd respectively, and approximately 25 km along trend (northeast) of the Corcel block acquired by Petrominerales producing approximately 14,000 bopd.
To acquire the 50% interest from Fenix in the Block: (1) Brownstone will issue 500,000 common shares to Fenix for its 25%, and (2) Quetzal will issue 3,000,000 common shares to Fenix for its 25%.
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