LGO Energy today told DirectorsTalk it has made further progress on its Cedros Peninsula interests in the south west of Trinidad where it has entered into a further agreement with Beach Oilfield Limited (“BOLT”) as part of the previously announced arrangements to acquire all of BOLT’s interests in oil and gas leases with rights to deep targets below 7,000 feet. Separately, LGO’s title to its 100% owned Cedros leases have now been accepted by the Ministry of Energy and Energy Affairs, who are in the process of issuing a Petroleum Rights License for those leases which cover an area of approximately 3,850 acres.
In November 2014 LGO agreed to pay a total of US$400,000 to BOLT in part payment of the US$2.5 million sum agreed in 2013 for the purchase of the rights below 7,000 feet in the leases owned or to be obtained by BOLT. LGO has now agreed to pay a further US$200,000 to BOLT in part payment of the remaining consideration of US$2.1 million. The final payment due at closing under the agreements is thereby reduced to US$1.9 million.
BOLT Deep Rights Agreement
In the Heads of Agreement (“HOA”) announced on 9 December 2013, LGO and BOLT agreed to work together to cross-assign their various interests to explore the deep horizons below 7,000 feet. In 2014, a surface geochemistry sampling survey was conducted jointly by the parties. The original consideration agreed was US$2.5 million and LGO advanced US$400,000 in November 2014 to assist in transferring and extending certain leases.
The parties are in agreement that the required licenses can be obtained, but that further funds are required to progress licensing matters, and have therefore agreed that LGO will advance a further US$200,000 to BOLT as part consideration for the Deep Rights. As a result LGO’s exclusivity has been extended to 30 September 2016. The funds will be used to close various transactions with lease owners that are necessary for the formal award of the Deep Rights Petroleum Licence which LGO will own outright and operate.
Consideration and further Terms of the Acquisition
— In November 2014 LGO agreed to pay a total of US$400,000 to BOLT (“Initial Consideration”) in part payment of the US$2.5 million sum agreed in 2013 for the purchase of the rights below 7,000 feet in the leases owned by or obtained by BOLT.
— LGO has now agreed to pay a total of US$200,000 to BOLT (“Additional Consideration”) in part payment of the remaining consideration of US$2.1 million.
— The Additional Consideration will be satisfied by the issue to BOLT of 3,889,697 new LGO Ordinary Shares of 0.05p each (“Ordinary Shares”) issued at a price of 3.3p.
— The remaining US$1.9 million will be payable in some combination of cash and shares at LGO’s discretion subject to the effective transfer of the Deep Rights and the receipt of an appropriate exploration and production licence by 30 September 2016.
— Should these not be achieved by this date, then the Initial Consideration and the Additional Consideration shall be repayable to LGO, guaranteed by Dr. Krishna Persad.
— LGO will, on completion, grant BOLT a gross overriding royalty of 5% on the gross production of petroleum from the Deep Rights.
— LGO undertakes to drill an exploration well into the horizons of the Deep Rights within 72 months of completion of the transaction and the granting of a valid licence by the Trinidad authorities.
Cedros Peninsula
The Cedros Peninsula, where LGO already has production from the shallow Icacos Oilfield, is significant as it is largely unexplored with regard to deep potential and in its close proximity to the prolific East Venezuelan Basin of which the Cedros is geologically a part. The only deep onshore well, FRM-1, drilled in 2008 to a depth of 12,301 feet found oil shows in the Lower Cruse and Lengua formations at around 11,700 feet before the well was lost for mechanical reasons. The Herrera Sandstone formation was not reached. The en-echelon structures offshore at Soldado have yielded major oil fields up to over 200 million barrels and it is LGO’s view that similar structures may lie onshore beneath the Cedros.
Following the transaction envisaged in the BOLT agreements, which covers approximately 5,450 acres, LGO will hold rights to approximately 10,900 gross acres of petroleum leases in the Cedros Peninsula where it has recently conducted a soil geochemistry study in collaboration with BOLT. The Company is also integrating all existing well and seismic data prior to planning a deep (approximately 12,000 feet) exploration well to test the presence of potentially oil bearing Lower Cruse and Herrera Sandstones that have previously been successfully tested by wells offshore in the Soldado complex of oil fields.
The recently acquired and processed Full Tensor Gravity Gradiometry survey, flown by ARKeX Limited in early 2015, is being interpreted and is providing extremely valuable additional insights into the structure and prospectivity of the Cedros area.
Neil Ritson, Chief Executive of LGO, commented: “We are now making excellent progress in bringing together the licensing and the technical work in the Cedros so that we can begin drilling in 2016 and beyond. Early indications from our geochemistry and airborne gravity surveys completed recently are that we may well have multiple prospects from which to choose the first well target.”
