Petromanas amends farm out agreement with Shell and Shpirag-2 reaches total depth

Petromanas Energy announced on 24 June that it has entered into an amended definitive farm out agreement (the “Agreement”) with a wholly owned subsidiary of Royal Dutch Shell plc (“Shell”), whereby Shell will further farm into the Company’s exploration rights on Blocks 2-3 (the “Blocks”) comprising approximately 852,000 gross acres onshore Albania. Under the terms of the Agreement, Shell will acquire a further 25% participating interest in the Blocks in exchange for total consideration of approximately US $22 million. Assuming full execution of the exploration program, the Company expects the Agreement will result in a reduction of its net cash outflows by more than US $60 million over the next two years. Petromanas remains the operator of the Blocks and the Joint Operating Agreement between the parties remains in force and unchanged. The Agreement is effective June 1, 2013 and is subject to customary closing conditions including the receipt of all necessary regulatory and government approvals.

“Our understanding of the prospects on Blocks 2-3 continues to evolve through a combination of our own experience drilling the Shpirag-2 well and our partner’s insight generated through recent and ongoing work in analog plays in the region,” said Mr. Glenn McNamara, CEO of Petromanas. “The joint venture has determined that the defined exploration program will include three wells and a seismic program with gross spending projected to approach US $200 million. Reducing the Company’s working interest to 25% allows the Company to mitigate risk and improve financial flexibility. With a focus on planning for long term success, management believes this decision will allow Petromanas to participate in the ongoing exploration of Blocks 2-3 with a sustainable working interest. We view Shell’s willingness to acquire an additional interest in this asset as an indication of their belief in the prospectivity of Blocks 2-3 in Albania.”

Under the terms of the Agreement, Shell will make equalization payments with respect to gross drilling costs on the Shpirag-2 well to a maximum of US $50 million. Shell will increase the carry on the Molisht-1 well to a maximum of US $50 million gross drilling costs and will carry Petromanas on a third well to a maximum value of US $42.5 million gross drilling costs. The Agreement also reduces the Company’s share of the US $40 million 2013 seismic program to approximately US $1 million. Any potential excess costs of the expanded work program over the carried amounts shall be jointly paid by both parties in proportion to their participating interest.

Petromanas today also announced the Sphirag-2 well has reached total depth (TD) of approximately 5,500m. The total drilling gross cost is now projected at approximately US $70 million (net US $16 million assuming closing of the Agreement). The rig will be moved off the Shpirag-2 lease once the Molisht-1 lease construction is completed. Stimulation and testing equipment rig up will commence once the drilling rig is off the Shpirag-2 lease. The Company intends to test in the range of 350-400 metres of the target carbonate. Timing for the rig move and commencment of testing operations is expected to be mid-August 2013.

energjia.al, 26.06.2013