17th Mar 2016 10:15
LONDON (Alliance News) - MX Oil PLC on Thursday said it has decided to solely focus on only one of the four assets secured in Mexico last year by selling its stake held in the other three assets to its partner, and said it is progressing the potential sale of its interests in Nigeria.
The company said it has signed binding terms with Mexican firm Geo Estratos to sell its 55% working interest in the Ponton, La Laja and Paso de Oro land contract areas for a total of USD1.8 million.
MX Oil and Geo Estratos were awarded four areas by the Mexican government late last year, but MX Oil has decided to focus on only one of those areas.
As part of the deal, MX Oil will see its working interest in the Tecolutla land contract area to 66.6% from the current 55% interest.
"After having carried out further assessment on the four land contract areas, the company has decided that it was best to focus its resources properly on what it believes to be the most attractive investment opportunity being Tecolutla," said the company.
In addition, MX Oil is due to receive USD195,000 from the National Hydrocarbons Commission, which represents the USD65,000 the company was required to deposit in the form of a letter of credit for each of the three blocks prior to bidding in the licensing round.
Following the deal, MX Oil will only hold that interest in Tecolutla, and Geo Estratos will hold the other 33.4% interest in the asset and continue as operator. Geo Estratos will fully own the other three land contract areas.
Geo Estratos will fully finance its pro-rata share of the cost of the development of the asset going forward.
Importantly, MX Oil has the option to become the operator of the Tecolutla area, subject to regulatory approvals, but said Geo Estratos will continue as operator for the meantime to allow MX Oil to "benefit from its local knowledge and expertise".
"This transaction will effectively enable the company to more than recover the investment made to date in securing assets in Mexico whilst, at the same time, increasing its position in what it believes to be the most attractive asset," said MX Oil.
MX Oil said it has defined significant field development potential at Tecolutla including drilling horizontal wells at reservoir crest locations which are expected to significantly enhance production and recovery rates.
The company said existing wells in the area are vertical development wells, with horizontal wells expected to improve operations.
"Additional upside has also been identified on 3-D seismic. Geo, as operator of Tecolutla, submitted a "provisional plan" to the National Hydrocarbons Commission on March 8, 2016, setting out its proposed near-term plans to assess the potential for early production from the asset," said MX Oil.
In addition, MX Oil said GEC Petroleum Development Co is due to pay the USD2.0 million required to secure the option to purchase MX Oil's Nigerian investment for an overall consideration of USD18.0 million.
MX Oil said it has been informed by GEC Petroleum that it is close to finalising USD10.0 million of funding which will cover both the initial payments to secure the option and the payment on exercise of the option to acquire the investment.
"Notwithstanding the recovery in the oil price and the close proximity of the company's investment to expected oil production, the company continues to believe that this transaction with GPDC is an attractive option for MX Oil," said the company.
"GPDC has now indicated it intends to make the initial payment of USD2.0 million within the next seven days and, for additional comfort, has provided the company with a corporate guarantee from Global Energy Co Ltd to support the total initial payments to secure the option of USD3.5 million. The company will provide a further update in due course," the company added.
MX Oil shares were trading flat at 0.75 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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