Iona Energy Inc. has entered into a definitive Sale and Purchase Agreement to purchase, from Fairfield Cedrus Limited (Fairfield), a 100% interest in U.K. Block 3/8d containing the Staffa Oil Field. The transaction is subject to approval of the U.K.'s Department of Energy and Climate Change (DECC).

Under the terms of the agreement, Iona shall reimburse Fairfield in cash for pre-development expenditures related to the Staffa Oil Field, including, but not limited to, cash deposits on subsea wellheads, production trees and associated equipment, a pipeline route survey, an advanced Field Development Plan ("FDP"), pre-development engineering studies, and reservoir optimization modeling and engineering. These expenditures have been determined at $8.6 million. In addition, upon FDP approval by DECC, Iona shall make a cash payment of $5 million to Fairfield and pay a net price of $2.50 per barrel of production commencing upon first oil from Staffa.

The Staffa Oil Field is located in Block 3/8d in the UK North Sea and lies approximately 14 kilometers south-east of the producing Ninian Central platform. The Staffa Field also lies due south of the Orlando Oil discovery within Block 3/3b in which a 35% working interest is held by Iona. The Staffa Field is a three-way fault closed structure approximately 4 km long by 2 km wide and has a 489ft (true vertical thickness) oil column in the Upper Brent sandstone reservoirs. The Staffa field produced at rates of between 10,000 and 5,800 barrels of oil per day ("bopd") between the years 1992 and 1994 and ceased production when the Brent crude oil price was approximately $13 to $15 per Barrel.

Iona intends to close the Staffa transaction by the end of the year. Immediate upon close, Iona intends to file the FDP for DECC approval. The environmental plan is in progress and is subject to DECC approval. The draft FDP plan incorporates a subsea buried 'pipe in pipe' insulated flowline and will allow for chemical injection, as currently envisaged by Iona for the Orlando development. Closing is subject to the approval of DECC by February 28, 2012 or by such other later date as the parties may agree.

Iona's Chief Executive Officer, Neill A. Carson commented, "The acquisition of the Staffa Discovery represents a key milestone for Iona. We are delighted with Iona's 100% Operated interest in this asset and will drive hard on getting to first oil as quickly and safely as possible. Iona has currently engaged Gaffney, Cline & Associates Ltd., an independent reserve auditor, to evaluate Staffa and we expect to receive their reserve report on Staffa in the next few weeks. In parallel, the team is lining up the necessary engineering, kit, and services to ensure that we're executing in the 2012 timeframe. Staffa is an excellent addition to our portfolio and we look forward to its commercialization."

Tags: Iona Energy Inc.