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Petro One Energy Corp. has entered a farm-out and royalty agreement with a senior oil company on its 100% controlled J10 property at Bromhead, Saskatchewan, in Canada.
The agreement calls for the farmee to drill an earning horizontal well in the Frobisher or Midale formation by March 31, 2013. By paying 100% of the drilling and completion costs, the farmee will earn a 100% interest in the test well spacing unit to the base of the lowest formation penetrated, both before and after payout, subject to a 10% gross overriding royalty (GORR) in favor of Petro One. The GORR may be converted at the option of Petro One into a 30% working interest in the initial test well within 30 days of receiving notice of payout, and a 40% working interest in all subsequent wells after receiving notice of payout.
If the farmee drills the test well to the contract depth, it will have 90 days from the rig release date to elect to drill a second well, to be spudded within 90 days after that election, by paying 100% to earn a 100% interest in the option well spacing unit to the base of the lowest formation penetrated, both before and after payout, also subject to a 10% gross overriding royalty in favor of Petro One. The GORR on the second well may be converted into a 40% working interest at the option of Petro One within 30 days after receiving notice of Payout. Third and subsequent wells may be elected by the farmee under the same terms as the second well.
Under Saskatchewan regulations, the Bromhead property (259 hectares - 1 section) could accommodate up to 10 horizontal Frobisher wells spaced a minimum of 150 m (492 ft) apart, with a 100 m (328 ft) offset from the property boundaries. Petro One believes that its Bromhead property has strong Midale and Frobisher potential. Seven wells in the immediate area have produced oil from the underlying Frobisher beds, including a vertical well 200 m (656 ft) south of the property that produced more than 100,000 bbl of oil from the Frobisher with a three-month IP of 95.6 b/d of oil, as well as more than 407,000 bbl of oil from the Midale with an IP of 146 b/d.
In addition to holding Frobisher rights to the entire section, Petro One owns Midale rights to the east half of the section, which could accommodate up to five Midale horizontal wells and is also covered by the farm-out agreement. The west half of the section, where Midale rights are held by a third party, covers part of the Bromhead Midale field, where the best well has yielded 734,500 bbl of oil. This well had a three-month IP of 209 b/d and is still pumping 12.5 b/d after 44 years on production (Source: IHS Accumap).
Several other senior oil companies have expressed interest in other Petro One properties, and discussions are ongoing. The Company's assets currently include rights to 14 properties totaling 15.86 sections (4,108 hectares/10,152 acres). The company plans to continue to build production and develop its assets with the drill bit, both with its own capital, and in collaboration with farm-in partners.