LONDON (Alliance News) - Range Resources Ltd and Red Emperor Resources NL Wednesday said the operator of their Georgian project has been notified by the Ministry of Energy of Georgia that the production sharing contract for one of the project's two blocks has been terminated after Strait Oil failed to meet its obligations.
The contract was suspended after Range refused to fund a second well on the project that Strait Oil was required to drill, as Range believes Strait Oil failed to comply with an agreement between the two companies, leaving Red Emperor in the lurch.
Range Resources has a 45% stake in Strait Oil and Gas, which operates the Georgian project. Red Emperor is Range's and Strait's joint venture partner on the project.
Both Range and Red Emperor said this solely affects Block VIb and does not affect the validity of Block VIa.
In separate statements, Range and Red Emperor said the Georgian Ministry said Strait failed to drill a second exploration well on the project that it was obligated to drill, resulting in the contract being terminated and Strait paying a USD1.0 million fine.
Range said it has been a "supportive investor" in Strait Oil and the Georgia project since 2009 and has invested approximately USD40 million into the project, which is "significantly in excess of the original expectation of cost to this point".
Range said it would have been required to fund the second exploration well on the project but believes that Strait Oil failed to comply with the agreement between the two companies, which resulted in Range refusing to pay. Range also added the project a "non-core" asset for the company that it is trying to dispose of.
"Subject to all the conditions of the various agreements between the shareholders of Strait Oil which were entered into during 2011 being satisfied, Range would have been required to fund the costs of the second exploration well. However, Range believes that Strait Oil has failed to comply with material terms of the agreements and has notified Strait Oil of a dispute. Range expressly reserves all its legal rights under the agreements," it said in a statement.
On April 14, Red Emperor had said it was advised in March by Strait Oil that a drilling programme and valid drilling licence was in place with the Georgian Oil and Gas Ministry, but Red Emperor also said that Range had been focused on disposing of the asset rather than making further investment in the site.
Range responded by admitting it was seeking to restrict any further investment in Strait and was actively exploring disposal options for the asset.
Red Emperor said it has fulfilled its obligations, especially in cash contributions toward the second exploration well. Red Emperor said it "continued to act in good faith" to work with Range and Strait Oil, and said it was "extremely disappointed" to be put in this position.
"Red Emperor has continued to act in good faith and endeavoured to work with all parties to achieve a favourable outcome throughout its involvement in this Joint Venture. It is extremely disappointed that it finds itself in this position, but reaffirms that it has met all required obligations under the agreements," said Red Emperor.
Range shares were up 4.7% to 0.560 pence per share on Wednesday morning, whilst Red Emperor shares were up 2.5% to 2.46 pence per share.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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