Petrolifera has entered into an agreement with a subsidiary of Americas Petrogas Inc. to farm-out the 253,000 acre Vaca Mahuida Block, located in the Neuquen Basin in the Province of Rio Negro onshore Argentina. After completion of the committed work program and related expenditures, ownership of the Block would be 25 percent by Petrolifera, as operator; 25 percent by Americas Petrogas; 25 percent by Brownstone Ventures Inc. ("Brownstone"); and 25 percent by Serrante S.A., a private company related to Americas Petrogas.
Under the terms of the Farmout, Petrolifera will be reimbursed for certain past costs incurred by the company and will be carried for its share of anticipated costs of the remaining exploration activities needed to fulfill the committed work units, under the first period of the exploration permit originally awarded to Petrolifera which expires on May 31, 2010.
The exploration activities and commitments for which Petrolifera will be reimbursed or carried, at no cost to Petrolifera, include the drilling of four exploratory wells (depths ranging from 1,000 meters to 1,500 meters), reimbursement of the back-costs of the exploratory well VM-2014 and, if required, payments in cash to the government of Rio Negro for the value of the outstanding amount for any work units that have not been incurred by the end of the first exploration period.
Exploratory well VM-2014, drilled and cased by Petrolifera with its existing joint venture partner Brownstone, encountered a number of zones of interest, including some with crude oil shows in side wall cores, and it will shortly be under evaluation for testing and possible completion as a new discovery.
The Vaca Mahuida farmout was undertaken by Petrolifera as part of its risk-management strategy. It will reduce Petrolifera's exploration commitments in Argentina, thereby allowing the capital to be dedicated to other near term commitments, mainly in Colombia, while the company will still retain a meaningful participation in a significant, operated exploration program, at no financial cost.
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