IRVING (dpa-AFX) - Canacol Energy Ltd. (CNE.TO) announced that its wholly owned subsidiary, Carrao Energy Sucursal Colombia, has entered into a farm-out agreement with ExxonMobil Exploration Colombia Limited, a wholly-owned subsidiary of ExxonMobil Corp.(XOM) for the exploration of Canacol Energy's non-operated VMM 2 exploration and production or 'E&P' contract located in the Middle Magdalena basin of Colombia.
The VMM 2 E&P contract is one of three adjacent contracts that Canacol has interests in, representing 126,000 net acres that expose Canacol to a potentially large, unconventional shale oil play.
As per the terms of the deal, ExxonMobil will carry the cost of the drilling and testing of up to three wells to test conventional and unconventional targets in the La Luna and Rosablanca formations, both proven oil source rocks in the area.
Under the terms of the agreement, ExxonMobil will pay 100% of the cost of the three wells, up to a cap of gross US$15 million for each of the first 2 wells, and a cap of gross US$ 17.5 million for the third well should it be a horizontal lateral well exceeding 4,000 feet in lateral length, and US$ 15 million should it be another vertical well.
Canacol Energy noted that ExxonMobil will also pay Canacol US$ 2.2 million upon execution of the farm-out agreement for back-costs related to the acquisition of 3D seismic on the block in 2011. The total potential investment on the block is approximately US$ 50 million. In return, ExxonMobil shall earn 50% of Canacol's 40% interest in the contract. Vetra will remain as operator of VMM 2 during the exploration period and expects to spud the first exploration well in late 2012.
The formal assignment of working interests as contemplated by the transaction, including Canacol's 20% interest, remain subject to the approval of the Agencia Nacional de Hidrocarburos of Colombia.
Canacol retains 100% interest in the Santa Isabel E&P contract, and plans to drill one exploration well in the second half of 2012. Should the Cretaceous shale exploration wells in the adjacent VMM 2 and VMM 3 prove successful, Canacol will have retained significant exposure and upside to the play on its 100% owned contract.
Copyright RTT News/dpa-AFX
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