Eurogas International Inc

TUNISIA: 02/18/2016 7:43:05 PM
ALBERTA: 02/18/2016 11:43:05 AM


Recent Events – Farmout and Reacquisition of Interests from Delta Hydrocarbons B.V.

In April 2008 the Corporation’s predecessor and APEX entered into a series of agreements with Amsterdam-based Delta Hydrocarbons B.V. (Delta) whereby Delta acquired a 50 percent interest in the Sfax joint venture and a 50 percent interest in Innovative Production Services, Ltd. (IPS) in exchange for the expenditure by Delta of an aggregate of US$125 million, including a cash payment of US$24.5 million (US$11.2 net to Eurogas Corporation, predecessor to Eurogas International Inc). The commitment by Delta included carrying EII and APEX for their respective share of expenditures.

As a result of the Delta transaction, Eurogas International’s interest in both the Sfax joint venture and IPS was reduced from 45 percent to 22.5 percent. Under the terms of the agreements, if Delta does not fulfill its spending commitment, its 50 percent participating interest would be subject to reversal, in which case Eurogas International Inc’s interest in the Sfax joint venture and IPS would revert to 45 percent.

On January 27, 2009 Delta notified EII and APEX of its desire to market its 50 percent participating interest under the Delta farmout agreements. Pursuant to a right of first offer, EII and APEX responded with a settlement offer.

On May 22, 2009 Eurogas announced that, together with its Joint Venture partner, APEX, it has reached an agreement with Delta with respect to Delta’s previously expressed desire to exit from the Joint Venture and the related agreements pertaining to the farmout of the Sfax Exploration Permit and the Ras El Besh Concession in Tunisia. Prior to exiting the Joint Venture, Delta had expended approximately US$110 million on the project.

Under the Agreement, Delta will reassign its 50 percent participating interest in the Sfax Exploration Permit and the Ras El Besh Concession and transfer its shares in IPS to the remaining Joint Venture partners, including EII. In exchange, Delta will be entitled to a portion of certain payments, when received by the joint venture, including a share of the proceeds from the Cost Oil portion of any future production revenues and a share of the proceeds from any sale or lease of assets, to a maximum of US$20 million.  Delta remains committed to fund 50 percent of any costs associated with the abandonment of the REB-3 well until December 9, 2011.

The reassignment of Delta’s participating interest is subject to the approval of the Tunisian regulatory authorities.  On completion of such reassignment, EII’s participating interest in the Sfax Exploration Permit, Ras El Besh Concession and IPS will be 45 percent and APEX’s participating interest will be 55 percent.

Sfax Permit and Ras El Besh Concession Work Program

The 2009 exploration program is budgeted at a total cost of US$6.4 million (net US$2.0 million) directed primarily towards geological and geophysical studies to identify drillable structures in the Reineche and El Garia formations. The studies will incorporate the results of Ras El Besh 3 wellbores and evaluate the hydrocarbon potential in the vicinity of the Ras El Besh and Jawhara structures and in the shallow waters south of the Kerkennah Islands that are sparsely evaluated due to the high cost of acquiring transition-zone seismic.

The Reineche formation produces oil and natural gas from two fields north of the Sfax permit boundary only 25 kilometres from REB3. The Cercina oil pool has produced over 12 million barrels of oil to date and is currently producing at 2,500 barrels per day. The Chergui natural gas field came onstream in 2008 and produces up to 50 million cubic feet per day with published reserves of 88 billion cubic feet.

Future Exploration and Evaluation

The REB3 well has provided Eurogas International Inc. with important results. Oil has been discovered in the Reineche formation, resulting in greater focus on that formation in the northern portion of the permit. It is clear, however, that further evaluation and analysis needs to be performed before new wells are drilled.

The proposed new seismic mentioned above will target hydrocarbon leads in the Reineche formation in an area located north of the REB3 well and south of the Kerkennah Islands. The 2009 budget also provides for a possible acquisition of onshore land from which a less expensive Salloum appraisal well could be drilled if a decision is made to proceed. The work program and budget may be adjusted based on results of the technical analysis currently underway and the ultimate timing will depend upon the availability of contractors and crews.

In May 2007, EII, through IPS, purchased a Mobile Offshore Platform Unit, a jack-up vessel envisioned as a potential production vessel for EII’s Tunisian operations. The 2009 budget of US$6 million (net US$1.4 million) will be used to finalize repairs and modifications to the unit. If the vessel is not required for production operations in Tunisia in the near future, the partners will either sell it or lease the vessel to a third party.