Lion Energy has come to an agreement with Africa Oil regarding certain amendments to the existing farmout agreement on all its east Africa assets. The amendment of the Lion farmout agreement with Africa Oil provides that Lion will reduce its interest in Block 10BB to 10% (originally 20%) and will not retain any interest in Block 10A (originally 25%). As consideration Africa Oil has agreed to pay Lion US $2.5 million in cash and to issue to Lion 2.5 million common shares of Africa Oil. Africa Oil has also agreed to the elimination of future expenditure promotes in Block 10BB and on the Company's projects in Puntland (Somalia) and the release of US $4.0 million in escrowed funds.
The amendments to the farmout agreement are subject to the successful closing of a definitive farmout agreement between Tullow Oil plc ("Tullow") and Africa Oil whereby Tullow will acquire a 50% interest in, and operatorship of, three of Africa Oil's east African exploration blocks, comprised of two exploration blocks in Kenya and one exploration block in Ethiopia. Under the terms of the Tullow farmout agreement, Tullow will acquire a 50% interest in, and operatorship of, Blocks 10BB and 10A in Kenya.
Lion Energy President and CEO John Nelson stated, "We are very pleased to have had the opportunity to change the terms of our farmount agreement with Africa Oil and as a result make it possible for Tullow to become Operator of the blocks. Tullow has gained significant technical and operational expertise from their Uganda Lake Albert Graben project which will benefit all parties involved in the exploration of Kenya's rift basins. The transaction will strengthen the balance sheet of Lion and will provide sufficient funding under more favorable un-promoted terms to complete our commitments on all the blocks retained. As a result of the deal the Company will now be a better position to pursue alternative exploration or development opportunities as well as have sufficient time to allow the Company's other investments to grow over the coming months."
Africa Oil is currently acquiring seismic in Block 10BB in Kenya. Drilling of the first exploration well on this block is expected to take place during the first half of 2011. The Company continues evaluation of a potential gas discovery and additional hydrocarbon potential in Block 9 in Kenya. Drilling plans in Puntland Somalia continue to progress but the first well on these blocks will likely be delayed until 2011.
The above transactions are subject to final approval of the Tullow farmout, host government approvals, waiver of any preemption rights by Africa Oil's partners and any applicable regulatory requirements.
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