Genel Energy PLC plans to acquire a 40% undivided interest in the Chia Surkh block in Iraq’s Kurdistan region from Longford Energy Inc., Calgary. Genel already owns a 20% interest in the block.
As part of the transaction Longford is to receive $68 million, of which $42 million cash will be paid to Longford and $26 million will be paid directly to the Kurdistan Regional Government in settlement of outstanding capacity building bonus payments and related interest due under the Chia Surkh block production sharing contract.
Longford acquired a 40% interest in the PSC in 2009. The 3-year first exploration term was set to expire on June 11, 2012. Under the minimum work program obligations, Longford has an outstanding commitment to drill two exploratory wells and to a $20 million minimum expenditure in the next 5 months that cannot be realistically fulfilled financially or operationally. This expected nonperformance, and the risk of contract expiration and cancellation, was a key consideration in the sale to Genel.
If Longford is unable to secure shareholder approval for the transaction by Mar. 1, 2012, it has agreed to assign its interest in the block back to the KRG without compensation. As consideration for this amendment, the Ministry of Natural Resources of the Kurdistan Region has indicated to Longford that it will support the transaction when submitted for final approval to the regional oil and gas council.
