AIM listed Sirius Petroleum has entered into an acquisition and joint operating agreement with Del Sigma Petroleum Limited ('Del Sigma') for development of the Ke marginal field which has aggregate recoverable hydrocarbon reserves estimated to be in excess of 25 mmbbls (2P reserves) and is located in Oil Mining Lease 55 ('OML 55') in Nigeria. Completion of this Agreement will be conditional on inter alia shareholder approval and approval from Nigeria's Department of Petroleum Resources ('DPR').

Under the terms of the Agreement, Sirius is entitled to a direct 40 per cent interest in the Ke Asset and an application will be made for this interest to be registered with the DPR. Sirius will jointly operate the Ke Asset with Del Sigma, and fund 100 per cent of the development costs. Upon production of oil, Sirius will receive a net preferential cash flow of 78 per cent from the production revenues until full recovery of its investment following which its cash receipts will revert to 40 per cent to match its underlying economic interest in the field pursuant to the Agreement.

There is no Farm-in consideration payable in relation to the Transaction. Del Sigma have incurred substantial historical sunk costs on the Ke Asset and, as part of the Transaction, Sirius has agreed to make initial payments to Del Sigma amounting to US$2 million which will be paid as to US$500,000 on the signing of the Agreement, US$500,000 following a successful visit by the DPR to Sirius's operations and US$1 million within 5 days of the DPR's final approval of the transfer to Sirius of the 40 per cent interest in the Ke Asset. Sirius is entitled to recover these initial payments as part of the recovery of the funding costs of developing the Ke Asset.

The transaction is categorised as a reverse takeover under the AIM Rules for Companies ('AIM Rules') and so requires shareholder approval. Sirius is in the process of preparing an admission document and circular (the 'Admission Document') to its shareholders pursuant to the AIM Rules, which will contain full details of the proposed Transaction including a Competent Person's Report which will be prepared in respect of the Ke Asset, together with a Notice of General Meeting and these will be posted to shareholders as soon as possible.

In the meantime, as required by the AIM Rules, the Company has requested that its shares be suspended from trading with restoration of trading due on publication of the Admission Document. Following completion of the Transaction, the Company will no longer be an investing company for the purposes of the AIM Rules and will be an operating oil development company working to bring the Ke Asset into production as soon as possible.

Tags: Sirius Petroleum