Longford Energy Inc. entered into a definitive sale and purchase agreement to divest its 40% undivided interest in the Chia Surkh Block in the Kurdistan Region of Iraq to Genel Energy Plc., which is already a 20% interest holder in the block.
As part of the transaction, Longford will receive consideration of $68 million of which $42 million cash will be paid to Longford and $26 million will be paid directly to the Kurdistan Regional Government (KRG) as settlement for outstanding capacity building bonus payments, and related interest, due under the production sharing contract (PSC).
Longford acquired a 40% interest in the PSC in 2009. The three-year, first exploration term of the PSC was set to expire on June 11, 2012. Under the minimum work program obligations, Longford has an outstanding commitment for the drilling of two exploration wells, and a commitment to a minimum expenditure of $20 million over the next five months, which cannot be realistically fulfilled in a timely manner. This expected non-performance and the risk of contract expiration and cancellation were key considerations in the transaction.
As a part of government approval for the Transaction, Longford has entered into an assignment and novation agreement with the KRG, Genel and Petoil Petroleum and Petroleum Products International Exploration and Production Inc. amending the terms of the PSC. Pursuant to this amendment, if Longford is unable to secure the requisite shareholder approval for the transaction by March 1, 2012, Longford has agreed to assign its interest in the Chia Surkh Block 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 & Gas Council.
Canaccord Genuity Corp. has been retained by Longford as exclusive financial advisor with respect to the proposed transaction.
The closing of the transaction is conditional on the receipt of various consents, approvals and assurances, including TSX-V approval, Longford shareholder approval and the approval of the KRG.