Operations Commence at PaP#1 Well
Enegi Oil updated on its PaP#1 well operations in Garden Hill South.
- Operations on the PaP#1 well in Garden Hill South have commenced despite delay to original schedule;
- Company adopts a strategy that avoids future risk concentration;
- Further farm-outs concluded between the Company and Dragon Lance Management Corporation ("DLMC") that establishes a regional development play over PL2002-01 and EL1070 with initial focus on the PaP#1 well;
- Farm-outs ensure that the Company maintains a significant interest in its Newfoundland assets yet significantly reduces the Company's financial commitments and the dependence on single event outcomes.
Alan Minty, CEO of Enegi Oil commented, "Following these farm-out agreements, the Company is no longer solely reliant on the outcome of a single event. We have gone from the dependence on the performance of a single well to having a number of real options. We believe that this strategy and having DLMC onboard, together with their financial and technical input, will give the Company a solid foundation from which to deliver further value to its shareholders."
Revision of Strategy and the Newfoundland Regional Play
Management have been undertaking a fundamental review of Enegi's assets in order to determine which strategy would deliver greatest value to the company and its shareholders. The strategy, outlined below, refines the Company's stated strategy at the time of its IPO:
- A continued commitment to working in western Newfoundland;
- A continued focus on appraisal and development projects where the presence of hydrocarbons is known;
- De-risking of interests where the presence of hydrocarbons is not clearly established; and
- Undertaking low capital investment approaches to increasing value of exploration assets.
The principal change in strategy for Enegi will be the avoidance of risk-concentration where a single negative outcome event may significantly impact shareholder value. Thus the Board have been working diligently to find a partner for a regional development play and after a period of significant negotiations they are pleased to have reached terms with Dragon Lance Management Corporation ('DLMC'). Having secured additional investment from external investors and being familiar with the assets and the region from their drilling activities in the area, DLMC are the ideal partner to develop the Company's Newfoundland regional play. As a result, the Board has approved and concluded the following linked arrangements:
- Revision of terms on PAP#1 well;
- Operations associated with the workover of PaP #1 well on PL2002-01;
- Farm-out agreement on PL2002-01 with DLMC to participate in a seismic program and drill one test well; and
- Farm-out agreement on EL1070 with DLMC to carry out a seismic program and drill one well to test the productivity of the Aguathuna formation.
Development of PL2002-01
As anticipated the development of PL2002-01 will commence with the workover of the PAP#1 well. The original farm-out agreement has been amended to provide DLMC with a 40% interest in the well after completion of the workover as part of the overall regional development plan. DLMC has issued a Work Program for the PaP#1 well in Garden Hill South ("GHS") and has informed the Company that operations onsite have now commenced, even though there has been a delay to the original schedule. DLMC's current plan is to re-enter the well on or before the 30th August 2010 to stimulate the well.
The development of the license will continue via a further farm-out agreement between the Company's wholly owned operating subsidiary, PDI Production Inc. ("PDIP") ("PL2002-01 Farm-Out Agreement"). Under the agreement DLMC will participate in a seismic program over PL2002-01, which will be a combination of 2D and 3D seismic. DLMC will also drill a new well to test productivity below the Table Point Formation ("Test Well"). DLMC will assume 50% of the total cost, risk and expense associated with the seismic program, and subject to PDIP electing not to participate in the Test Well, DLMC will assume 100% of the total cost, risk and expense associated with the Test Well in return for a 70% interest in PL2002-01. Should PDIP elect to participate in the Test Well it can do so to retain a maximum working interest in the license of 60%.
Work in preparation for the seismic program has commenced and it is hoped that subject to obtaining the appropriate approvals it will be conducted this winter. Once the program has been completed DLMC will have an 18 month window in which to commence the drilling of the Test Well. The length of time for completion of the seismic program has been carefully planned to allow the results of the seismic program to be scrutinized and to ensure that the well will not be drilled in winter.
Development of EL1070
As indicated in the Company's previous news release dated 20th November 2009, PDIP entered into an interest swap agreement with Shoal Point Energy ("SPE") and Canadian Imperial Venture Corp ("CIVC"). Under the agreement, PDIP gained a 100% interest in the strata below the Green Point Formation ("Deep Rights"), in exchange for PDIP transferring all its rights in the Green Point Formation and above ("Shallow Rights") to SPE and CIVC.
DLMC has entered into a farm-in agreement with SPE and CIVC. Under the farm-in agreement, DLMC will embark on a program over the Shallow Rights. Consequently, PDIP has signed a farm-out agreement with DLMC in respect of the Deep Rights ("EL1070 Farm-Out Agreement"). As part of the agreement, DLMC has paid C$100,000 to PDIP. Under the terms of the farm-out agreement, DLMC will commence a seismic program that will cover the prospective areas of EL1070. The intention is for a minimum of 40% of the seismic to be shot in 3D, although this will be subject to environmental considerations and permitting issues. DLMC will also drill a new well to test the productivity of the Aguathuna Formation located offshore, which contains the conventional Shoal Point prospect. DLMC will assume 100% of the total cost, risk and expense associated with the seismic program and the drilling of the new well. In return, DLMC will earn a 70% interest in EL1070.
Further announcements about the development of EL1070 will follow as plans are finalized.