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Emerald Enters SPA With Soyuzneftegas

Source: www.gulfoilandgas.com 11/14/2005, Location: Middle East

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Emerald has entered into a Share Purchase Agreement with Soyuzneftegas Limited (the “Vendor”) to acquire the entire issued share capital of SNG Overseas Limited (“SNGO”), a special purpose investment vehicle used by the Vendor to hold and fund its participating interest in the Block 26 EDP Contract, for a total consideration of approximately US$16.9 million. The consideration payable comprises:

A cash payment of US$7.3 million, payable on completion of the transaction, for the entire issued share capital of SNGO and to settle the outstanding shareholder loan granted to SNGO by the Vendor; and
3.5 million new ordinary shares of 10p each in the capital of the Company to the Vendor on 18 May 2007, the date falling eighteen months after completion of the Acquisition, these shares being worth approximately US$9.6 million at the Placing price.

The gross assets of SNGO, which total approximately US$7.3 million, consist solely of the investment in the Block 26 EDP Contract; this investment has been funded by a shareholder loan granted to SNGO by the Vendor. As SNGO is a special purpose investment vehicle, there are no profits or losses attributable to it.

Block 26 covers an area of approximately 11,000 sq km and surrounds existing discovered oil fields that currently produce over 85,000 bopd. The 20-26? API gravity crude oil with a high sulphur content that is produced from the Cretaceous limestone reservoirs in these fields is processed and then transported through the existing pipeline infrastructure either for domestic consumption or for export.

Besides the Cretaceous, particularly in the deeper Palaeozoic horizons, there is further hydrocarbon potential. Several wells have been drilled on Block 26 to the Palaeozoic, some with indications of hydrocarbon presence, but no commercial discovery. The leads and prospects currently mapped in the Palaeozoic are larger than those mapped in the Cretaceous and they are the focus of current technical studies in the lead up to the drilling campaign.

The rights under the Block 26 EDP Contract include rights under the discovered fields within Block 26 and undivided rights elsewhere within the block. The Block 26 EDP Contract also conveys rights of access to and use of existing production and transportation infrastructure. Block 26 is operated by Gulfsands Petroleum Plc (“Gulfsands”), an AIM listed company, who, following the completion of the Acquisition, will continue to own a 50 per cent. participating interest in the Block 26 EDP Contract. The Syrian Government and the Syrian Petroleum Company are also parties to the Block 26 EDP Contract.

In the event of commercial discovery, a Syrian operating company is to be formed to conduct and oversee development and production. The operating company would be owned as to 50% by the Contractor (defined as the owners of the participating interest in the Block 26 EDP Contract), and 50% by Syrian Petroleum Company. Under the terms of the Block 26 EDP Contract, commercial oil production is allocated first to satisfy the 12.5% royalty, part of the remaining production is used for cost recovery of the Contractor's investment and the remaining surplus is shared between the Contractor and Syrian Petroleum Company in various proportions according to the level of production. If commercial production does not occur within four years of the discovery with respect to oil, or seven years with respect to gas, then the development area is to be surrendered.

Under the terms of the Block 26 EDP Contract, the minimum work programme for the initial phase that must be completed by August 2007 includes the reprocessing of existing seismic data, the acquisition of at least 500 km of new seismic data and the drilling of four wells, two of which have to be drilled to test Palaeozoic reservoirs. Gulfsands is currently acquiring 1,170 km of 2D seismic and planning the drilling of at least two exploration wells in 2006.

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