Suroco Energy Inc. has exercised its option to acquire a 28% undivided working interest in the Llanos 33 Block in Colombia. The Corporation acquired the option from Thorneloe Energy Sucursal Colombia ('Thorneloe') pursuant to an agreement dated December 18, 2009.
'Exercising this option on Block 33, where we anticipate drilling two exploration wells in the first half of 2011, adds materially to the near-term activity in our exploration portfolio. By structuring our entry based upon a seismic option, we have been able to fully evaluate the new 3D seismic before we made the decision to acquire the Interest by exercising the Option, thereby taking out some of the risk in our entry decision. The new 3D seismic has revealed the presence of several exploration prospects which, assuming acquisition of the Interest is completed, under the terms of the Agreement we will be able to participate in drilling three exploration wells for no more than at a cost of $500,000 per well, except where the three exploration wells are not drilled in sequence, in which case the Corporation will be responsible for 28% of any additional mobilization or standby costs.'
Suroco will acquire the Interest in exchange for the following:
(a) 2,144,490 common shares of the Corporation at a deemed aggregate value of US$1,000,000;
(b) reimbursement of up to US$2,000,000 of the costs of the seismic program (the 'Seismic Program') completed by Thorneloe on Lanos Block 33; and
(c) where the costs of the Seismic Program exceeded US$2,000,000, reimbursement of up to 28% of the amount by which the costs of the Seismic Program exceeded US$2,000,000.
The acquisition of the Interest by the Corporation is subject to a number of conditions, including the approval of the TSX Venture Exchange and the Agencia Nacional de Hidrocarburos of Colombia.
The Agreement also provides that for any exploration well on Llanos Block 33 where there has been a discovery (a 'Discovery Well') in which the Corporation elects to maintain its working interest (instead of assigning its interest in such well to Thorneloe), the Corporation shall issue common shares to Thorneloe as follows:
(a) in the case of the first four of such Discovery Wells, 1,300,000 common shares; and
(b) for each Discovery Well after the first four of such Discovery Wells, 975,000 common shares.
In addition, the Agreement also provides that for each individual Discovery Well in which the Corporation has elected to maintain its working interest and which exceeds cumulative production of 5,000,000 barrels of oil, the Corporation is obliged to issue an additional 2,600,000 common shares to Thorneloe upon that production benchmark being met for the first time.