Enegi Oil has entered into non-binding heads of terms with PVF Energy Services under which PVF will farm into production lease 2002-01(A) in western Newfoundland, the company said on May 24.

The company anticipates that the head of terms will lead to the parties entering into a definitive agreement within 75 days, subject to all legal and regulatory approvals having been obtained or waived.

The heads of terms sets out that PVF would farm-in to the lease in two stages, (i) completing a 3-D seismic survey covering a minimum of the area of PL2002-01(A) in return for a 21% interest in the lease. The seismic, which is expected to cost in excess of CA$5 million (US$3.8 million), will be funded 100% by PVF and (ii)following the completion of the seismic, PVF will fund a new well into PL2002-01(A) in return for a further 49% interest in the lease. PVF will fund 100% of the cost of the farm-in well, anticipated to be in excess of CA$12 million (US$9.3 million). The location of the farm-in well will be determined by agreement between Enegi and PVF.

The final costs incurred by PVF to undertake the work program as set out above, if different from the expected costs, will not affect the interest earned by PVF.

The company anticipates that a new well will target areas of hydrothermal dolomite down-dip from the current PAP#1-ST#3 well, which demonstrate enhanced connectivity and porosity and are therefore believed to be able to deliver higher flow rates. Increasing production rates will significantly increase the total volume of oil that can be commercially recovered from Garden Hill and, as a result, drilling the proposed well will improve the economic return from the lease.

In return for funding 100% of the costs, PVF will also earn interest in the site infrastructure in line with their interest in the lease. Nu-Oil and PVF will be liable for abandonment obligations in proportion to their lease interests. Enegi Oil Inc. will remain as operator of the lease until completion of both stages of the farm-in.

PVF continues to work towards restoring production from the PAP#1-ST#3 well. As announced on May 8, the Department of Natural Resources has approved the program for the production test at the PAP#1-ST#3 well at Garden Hill, and preparations for this test, which is expected to last between 30 and 90 days, are currently under way.