Quetzal Energy has entered into a definitive agreement with SGS Acquisition to sell 100% of the shares outstanding of Quetzal Energy a wholly owned subsidiary of the Company that holds its Guatemalan operations.

Guatemala Operations

The principal assets of QEG are comprised of 80%-100% interest in two petroleum sharing contracts (6-93 and I-2005), a 500 horsepower Harold Lee trailer-mounted drilling rig, a Wilson 38 work-over rig and some inventory of oilfield equipment.

Based on unaudited and audited management prepared financial statements, net Income (loss) for QEG has been ($977,606) for the nine months ended September 30, 2011, ($643,082) for the fiscal year ended December 31, 2010 and ($1,236,581) for the fiscal year ended December 31, 2009.

Management estimates that the cash outlay to QEG from Quetzal has been approximately ($3,415,000) for the nine months ended September 30, 2011, ($3,774,000) for the fiscal year ended December 31, 2010 and ($3,731,000) for the fiscal year ended December 31, 2009.

Management estimates that total oil production for QEG was approximately 6,000 barrels for the fiscal year ended December 31, 2011, 3,850 barrels for the fiscal year ended 2010 and 5,905 barrels for the fiscal year ended December 31, 2009.

Including head office and field employees, QEG has approximately 49 employees in Guatemala that will remain with QEG.

Transaction Rationale

With recent drilling success in Colombia, Quetzal has decided to focus 100% of its management time and financial resources on its 4 private participating interests in Colombia.

Management's estimate is that QEG has outstanding unfunded capital obligations to the Guatemala government of approximately US$25 million for drilling 4 exploration wells, 2 development wells, conducting 2 well work-overs and shooting 437 km of 2D seismic. Although Quetzal management believes the Guatemala operations represent potential exploration upside, it was determined that Guatemala is non-core to the Company given those cost obligations and the Company's focused strategy on Colombia.

Transaction Consideration

In consideration of the sale of QEG, Quetzal will receive US$1,500,000 in cash (plus working capital adjustments) and will also receive a carried interest of 10% on the first two wells drilled by SGS on the QEG properties. Quetzal will also retain an option to participate, by paying its share, in 10% of all other wells drilled by SGS on the QEG properties.

Closing of the transaction is subject to certain customary conditions and will take place on January 31, 2012 or such other date as agreed to by the parties.

Tags: Quetzal Energy