Dragon Oil Agrees to Take a 40% Stake in SC 63 in NW Palawan Basin
Nido Petroleum Philippines Limited (Nido or the Company) revealed Thursday that it has entered into a farm-out agreement with Dragon Oil plc (Dragon Oil), with respect to Service Contract 63 (SC 63) North West Palawan Basin, Philippines.
Under the terms of the agreement, the farm-out will be completed as a two stage process, with Dragon Oil initially acquiring a 40 percent participating interest in SC 63 from Nido’s current 50 percent participating interest in Service Contract 63.
To earn its 40 percent interest from Nido, Dragon Oil will:
- Pay on behalf of Nido, 56 percent of the cost of the Baragatan-1 exploration well based a $25.0 million cost cap (dry-hole). This equates to a 1.4 to 1 promote on the 40 percent farm-out interest and results in the company being fully carried for the Baragatan-1 with a small overfund of $1.5 million (based on the well cost cap). Costs above the cap will be shared in proportion to participating interests
- On approval by the Philippines Department of Energy of the assignment of interest to Dragon Oil, Dragon Oil will reimburse the following costs to Nido:
- $2.18 million of past seismic costs; and
- $1.22 million of other past costs on a success case basis towards development expenditure
The second stage of the farm-out is subject to certain conditions and Philippine Government approvals being met which will allow PNOC–Exploration Corporation (PNOC-EC) the opportunity to divest a proportion of its participating interest in SC 63.
Assuming the relevant conditions are satisfied and approvals are secured for the second stage of the process, Nido will seek to secure an additional net 10 percent participating interest in SC 63 from PNOC-EC on the same terms agreed between Nido and Dragon Oil. Nido will then have a 20 percent working interest in SC63 and will then contribute $2.0 million towards the cost of the Baragatan well (based on the $25 million dry hole cost cap).
During the Baragatan-1 drilling operations Nido will remain as Technical Operator and PNOC-EC as Operator of the Service Contract. In this period, Dragon Oil will second personnel to the drilling team and will be responsible for overall drilling management. Following the drilling of the Baragatan-1 well Dragon Oil will have the right to become Operator of the Service Contract.
Miro Advisors assisted the Company with the farm-out process.
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