Caza Enters Farmout Agreement with Singular
Caza has entered into a farmout agreement with Singular Oil & Gas Sands, LLC on the Wilcox 116 Property in South Texas.
Under the terms of the agreement Singular has acquired a 10.00% interest in the Wilcox 116 Property. In return Singular will bear 13.33% of the drilling costs through completion of the Jonell Cerny Gas Unit #1 test well (the "Cerny Well") and 10.00% of all costs on the Wilcox 116 Property thereafter. Singular will also pay US$64,625 of back costs associated with this property to Caza. This transaction has been entered into by the Company's subsidiary, Caza Petroleum, Inc. ("Caza Petroleum") in accordance with standard industry practices and management's risk management strategy.
The Wilcox 116 Property is located in Wharton County, Texas. Within this property, the Cerny Well commenced drilling on 15 January 2008, and is anticipated to take up to 60 days to drill to a depth of 16,500 feet. The Cerny Well is targeting gas in the Deep Wilcox Sands, which are analogous to sands currently producing in Caza's nearby Matthys-McMillan Gas Unit #1 well (the "Matthys-McMillan Well"). The Cerny Well, if successful, will establish numerous development locations. The dry well cost of the Cerny Well is estimated to be US$8.3 million.
Caza, through Caza Petroleum, is the operator of the Wilcox 116 Property and, following the disposal noted above, now holds a right to earn a 29.88% working interest (which reduces to a 27.81% working interest after completion of the initial well with a corresponding 20.86% net revenue interest).
For the purposes of the AIM Rules for Companies (the "AIM Rules"), the Company is treating Singular as an associate of Sercor Limited, which is a substantial shareholder of Caza, and therefore as a related party of the Company under the AIM Rules. The Company is also treating Singular as a related party of the Company under Canadian securities laws and therefore this farmout agreement is being treated by the Company as a related party transaction for the purposes of both the AIM Rules and Canadian securities laws.
The transaction has been approved by Caza's board of directors, all of whom are unrelated to Singular. The board of directors of Caza considers, having consulted with its nominated adviser, Noble & Company Limited, that the terms of this related party transaction are fair and reasonable insofar as the Company's shareholders are concerned. This transaction is exempt from the formal valuation and minority shareholder approval requirements of Multilateral Instrument 61-101 of the Canadian Securities Administrators because the board of directors of Caza has determined that the fair market value of the subject matter of the transaction does not exceed 25% of Caza's market capitalization.
In March 2007, Caza entered into a farmout agreement with Singular on the Hite Offset Property to drill the Matthys-McMillan Well in Wharton County, Texas. Under the terms of that agreement Singular paid 15.67% of the drilling costs to casing point of the Matthys-McMillan Well to earn a 14.01% interest in the property thereafter. "Casing point" is the point at which operations to complete the well as a producer are commenced.
The Hite Offset Property and Matthys-McMillan Well are located in Wharton County, Texas. Drilling began on the Matthys-McMillan Well in March 2007, and it was drilled to a depth of 17,700 feet. In September 2007 this well was perforated in the Upper Wilcox section and is currently flowing at 4.6 MMcf/d.
Mike Ford, Chief Executive Officer of the Company, commented, "Like the recent transaction with Sojitz, this transaction consolidates our relationship with Singular in the Wharton West Wilcox area following our collaboration on the successful Matthys-McMillan Well."