Adira to Farm-Out Gabriella Interest Offshore Israel
Adira Energy has signed an agreement with Modiin Energy Limited Partnership ("MELP") and Modiin Energy General Partners ("MEGP") (collectively "Modiin"), which will facilitate the full initial funding of Adira's Gabriella offshore license on favorable terms subject to Brownstone Ventures Inc earn-rights and funding obligations.
The agreement reached will see MELP farm-in to 70% (of 100%) (the "Modiin Earn-In Rights") of certain rights of participation in License No. 378 / "Gabriella". This is in addition to Brownstone Ventures Inc's right, subject to certain conditions, to earn a 15% participating interest in the Gabriella License.
The Gabriella License consists of an area of approximately 390 sq km, in the Mediterranean, at a distance of approximately 10 km from the Israel coast, between the city of Netanya in the North to the City of Ashdod in the South and is located in shallow waters. The Gabriella License was granted to Adira Israel on the 15th July 2009 for an initial period of 3 years. The Gabriella License provides that Adira Israel perform a specific minimum work plan that includes, inter alia, conducting a 3D seismic survey and the drilling commencement on one well to a total depth of approximately 5000m.
The material terms of the agreement include the following:
- An agreed and approved work plan on the Gabriella License, together with a budget of US $8 million (the "Approved Work Budget") as well as an expected implementation timeline.
- In addition to financing its part of the Approved Work Budget, Modiin will finance Adira's share of the Approved Work Budget up to US $1.2 million. The agreement provides that in the event that Modiin does not meet its funding commitments, as stated above, it will return the Modiin Earn-In Rights without any compensation or any other claim against Adira.
- MELP and MEGP will pay Adira a combined royalty of 4.5% on the total wellhead revenue of the rights in oil and / or gas and / or other valuable materials produced up until such time as costs are recovered. Once costs are recovered this combined royalty will increase to 10.5%.
- Commencing on February 1, 2010, and for a period of two years thereafter, Modiin will pay Adira a monthly fee in respect of advisory services provided by Adira in connection with the license.
- MEGP will pay Adira 3.75% (half) of the 7.5% operator fee which MEGP is entitled to receive from MELP in terms of the management agreement between the two. This payment is for a period of 24 months. Following the initial 24 month period Adira will be entitled to receive 4.25% of the operator fee MEPG is entitled to receive from MELP.
- Adira have been granted an option to reacquire 15% of the Modiin Earn-In Rights (the "Back-In Option") back from MELP at cost. Cost is defined as cumulative expenditure on the exploration program as at date of exercise of the Back-In Option. The Back-In Option can be exercised during the period commencing on the date hereof and ending on the date which is 6 months from the earlier to occur of a discovery (as defined in the Israel Petroleum law of 1952) or until the license period ends.
- The parties have committed to negotiate in good faith a joint operating agreement within 60 days of signing the agreement, with Adira being designated as the Operator and being entitled to a 7.5% fee based on gross expenditures.