The Board of Baron Oil plc, the independent oil and gas exploration and production company, is pleased to provide an update on activities in Peru on Block Z-34.
Following preparation and presentation of a detailed drilling plan in Lima, the Company is pleased to announce that Cuy-Z34-13-1X has now been accepted by PeruPetro, the responsible government agency, as an exploration well location. The well is planned to be drilled in 5,764 ft of water to a total depth of 12,553 ft. Uruguayan based Union Oil and Gas Group ("UOGG") the Company's partner on the block is continuing farm out efforts for a partner to share the drilling costs and the Company feels this process will be assisted by the substantial reduction in well costs with the fall in rig rates and service costs. The licence remains in suspension through the Force Majeure clause of the Production Sharing Contract (PSC).
The Company owns a 20% carried interest in the Z-34 block PSC offshore north-west Peru with UOGG who own the remaining 80% interest but currently pay 100% of all the costs related to the block. This carry arrangement lasts through all remaining exploration phases of the PSC. The original transaction with UOGG was signed in April 2013 and the Supreme Decree to complete the transaction was officially approved by the Peruvian President in July 2016. The final step in the process is now the execution and publication of the Public Deed, which the Board anticipates will take place shortly. Under the terms of the Farm-in Agreement, UOGG will pay Gold Oil Peru US$2 million when the Public Deed completes the assignment. This amount will be subject to Peruvian tax at 30%.
Block Z-34 is located in an undrilled deep water basin and covers an area totalling 3,713 square kilometres. The prospect is located only some 15 kms from an existing producing field in the shallow offshore/onshore Talara Basin, an area that has already produced 1.7 billion barrels of oil. Most of the remaining potential in this area is believed to be located in this deep water basin.
The Company's internal estimates of gross unrisked best estimate (P50) prospective resources for the Cuy Prospect is 413 MMbbls recoverable.
Malcolm Butler, Baron's CEO commented as follows:
"Baron and UOGG have worked hard together over the past few months to produce not just the technical case for the optimum location to drill the Cuy Prospect but also a drilling, casing and mud programme that will cope with the unknown pressure environment of this hitherto untested basin and the problems created by the apparent presence of gas hydrates in the upper part of the geological section. Getting PeruPetro to accept this as a viable programme is a significant step forward. However, the well cannot be drilled until UOGG has brought in a partner with the financial and technical strength to actually operate in this challenging environment, a suitable dynamically-positioned drillship has been located and all necessary permits put in place."
