TORONTO, Nov. 12, 2012 /CNW/ - Sintana Energy Inc. (TSX-V: SNN) ("Sintana" or the "Company") is pleased to announce that Patriot Energy Oil & Gas Inc. ("Patriot"), wholly-owned by the Company, has entered into a Farmout Agreement (the "Agreement") with ExxonMobil Exploration Colombia Limited, a wholly owned subsidiary of Exxon Mobil Corporation ("ExxonMobil") (NYSE: XOM) 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. Major elements of the VMM-37 Agreement are as follows:
- 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.
- 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.
- 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.
- 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.