Farmout of Guijarral Hills Prospect
Neon Energy is pleased to announce a farmout of its Guijarral Hills exploration prospect, onshore California. Under the terms of the agreement both Neon and Operator Solimar Energy (“Solimar”) will assign a 50% working interest in the Guijarral Hills lease area to Blast Energy Services (“Blast”) in return for Blast paying 66.7% of the cost to drill, complete and test one exploration well, and payment of US$200,000 to Neon and Solimar as compensation for past costs (to be shared in proportion to Neon and Solimar’s respective working interests). The estimated cost to drill, complete and test the well is US$2.5 million, and Blast’s promote is capped at this amount.
The Guijarral Hills prospect is the mapped extension of a light oil and gas field that ceased operations in the 1990’s. The targeted area was not previously developed due to licensing issues, but it contains mapped extensions of four oil reservoirs that produced previously in the field area. Operator Solimar estimates the mean prospective resource to be 5 MMbbls, and based on analysis of previous production in the field initial oil rates of 400 bopd per well are possible.
The drill site is being prepared and a rig has been contracted to commence drilling operations during February 2011, with the well expected to take 35 days to reach a Total Depth of 10,400 ft (3467 m). Upon fulfillment of obligations under the Farmout Agreement, the respective working interests in the lease area will be as follows:
Neon Energy 15%
Solimar Energy (Operator) 35%
Blast Energy Services 50%
Neon’s Managing Director Ken Charsinsky said “This farmout is the first in a number of transactions planned by Neon that are designed to balance risk and reward in the Company’s portfolio, in order to maximise shareholder value. The Guijarral Hills well represents a commencement of operational activity in California after a period of consolidation and portfolio rationalisation, and we look forward to the results.”
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