ExxonMobil, Sintana sign farmout agreement for Colombian unconventional resources

Sintana Energy

Patriot Energy Oil & Gas Inc., a wholly-owned subsidiary of Sintana Energy Inc. (TSX-V: SNN), has entered into a Farmout Agreement with Exxon Mobil Corp. (NYSE: XOM) subsidiary ExxonMobil Exploration Colombia Ltd. for the exploration and development of unconventional oil and gas resources underlying the 43,000 acre VMM-37 Block in Colombia's Middle Magdalena Basin.

Participation interests

  • Subject to approval by the Agencia Nacional de Hidrocarburos of Colombia (the ANH), ExxonMobil will acquire an undivided 70% participation interest and operatorship in the formations defined as unconventional by completing the Work Program described below.
  • Patriot will retain the remaining 30% interest in the unconventional play as well as its current 100% participation interest in the conventional resources overlying the top of the unconventional interval.

Unconventional vs. Conventional

  • For purposes of this agreement, unconventional formations are defined as the La Luna and deeper.

Work Program

  • ExxonMobil will pay 100% of all Exploration Phase I well costs (3 wells). The estimated timing for the commencement of drilling operations on the first exploration well is the third quarter of 2013. A consideration will be paid that will compensate Sintana for its past expenses connected with the block.
  • ExxonMobil will have an option to proceed to the next phase. In this development phase, it will pay 100% of all additional costs to a maximum of US $45 million, of which US $10 million will be recouped by ExxonMobil from 50% of Patriot's production proceeds.
  • As agreed by Patriot and ExxonMobil, as joint participants in the Block, good faith efforts will be made to locate exploration wells targeting the unconventional play in such a way as to also test conventional prospects.
  • At various stages of the Work Program, as defined in the agreement, ExxonMobil will have the right to withdraw from the project, relinquish operatorship and reassign to Patriot the right to the 70% participation interest it would have retained had it met all investments and activities requirements of the agreement.

Supplemental investment capital

  • In the event that exploration and development of the unconventional resources continue beyond the activities and costs enumerated above, those costs will be shared based on the parties participating interests.
  • Further exploration and subsequent development plans for the unconventional and conventional formations will be decided on once technical data obtained from drilling the deeper unconventional play, and other sources, are analyzed.

Warranties

  • The ANH requires that operators provide secured performance warranties for various phases of the contractual Work Program. Sintana currently has in place a letter of credit in satisfaction of this requirement. ExxonMobil will assume responsibility for providing these warranties resulting in the release of restricted Sintana funds currently on deposit to secure the existing letter of credit.

Sintana's CEO, Doug Manner, commented, "Both the conventional and unconventional formations on VMM-37 offer tremendous potential for large discoveries with compelling economics. ExxonMobil owns interests in, and is the operator of, a number of very large, highly complex unconventional projects in multiple countries. It is on the leading edge of developing and applying highly technical methods and complex processes to discover, develop and produce unconventional reserves. We are fortunate to have ExxonMobil as our partner and look forward to a long and very successful working relationship."

Sintana Energy is primarily engaged in petroleum and natural gas exploration and development activities in Colombia and Peru. The company currently holds a 25% interest in the 175,000 acre Bayovar Block XXVII in the Sechura Basin, Peru.

The company's private participation interests in Colombia include 30% in 58,570 acres in the Talora Block and 30% in 272,021 acres in the COR-39 & COR-11 Blocks in the Upper Magdalena Basin. In the Middle Magdalena Basin, private participation interests are 100% in the 43,158 acre VMM-37 Block and 25% (carried) in the 154,909 acre VMM-4 and 59,522 acre VMM-15 Blocks.

In the Llanos Basin, the company has a carried 25% private participation interest in the 11,624 acre LLA-18 Block. These interests are subject to all applicable regulatory and governmental approvals, including those of Colombia's National Hydrocarbon Agency (ANH). The company continues to evaluate a portfolio of exploration opportunities in South America.

 

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