Nu-Oil & Gas (LSE:NUOG) inched up today after announcing a proposed farm-in agreement that will see the drilling of a new well at its vast production lease in Canada. After a steep rise in early trading, Nu-Oil was up 1pc, or 0.01p, to 1.11p by midday after entering into non-binding heads of terms with PVF Energy Services for a farm into PL2002-01(A), located in Newfoundland.
PL2002-01(A) targets the proven hydrocarbon bearing Garden Hill Field trend and is estimated to hold between 21 and 97MM barrels of oil. Under the proposed heads of terms, PVF would initially complete and fully fund a C$5m (£2.9m) 3D seismic survey covering the licence area in exchange for a 21pc interest in the lease. It would then fully fund the drilling of a well in the area, estimated to cost more than C$12m (£7m), for a further 49pc interest.
Nu-Oil’s subsidiary Enegi Oil and PVF will come up with an agreement to determine the location of the well. However, Nu-Oil said it expects the well to target will target areas that are believed to be able to deliver higher flow rates down-dip from the existing PAP#1-ST#3 well on the licence. It said increasing production rates would significantly increase the total volume of commercially recoverable oil, improving economic returns from the lease.
The two firms already have a net revenue-sharing agreement in place for PAP#1-ST#3, which sees PVF undertake and funds 100pc of the costs of the well, while Nu-Oil receives 50pc of net revenue from production. Nu-Oil said it expects today’s heads of terms to lead to a definitive farm-in agreement within 75 days, subject to the passing of all legal and regulatory approvals.
Alan Minty, chairman of Nu-Oil, said: ‘We have been discussing the wider development of PL2002-01(A) with PVF for some time, and I am pleased we have agreed the heads of terms for a potential farm-in which, subject to funding and execution of definitive documentation, will secure the future of Garden Hill. Both parties recognise its significant potential and are equally committed to generating the greatest value from the resources. The seismic will enable the parties to optimise the location of the farm-in well to achieve that objective. I look forward to concluding the farm-in agreement with PVF in due course.’
Brian Hickey, president of PVF, added: ‘I am pleased to have agreed on terms for a farm-in with Enegi which I believe will lead to Garden Hill becoming the first commercial oilfield in western Newfoundland. I have believed for many years that this area, and Garden Hill, in particular, holds significant hydrocarbon resources if they can be safely and efficiently developed. I am excited about realising that vision alongside Enegi and our local partners.’