Farm-out Agreement

2 Oct 2007 13:00

Falkland Oil and Gas Limited02 October 2007 Falkland Oil and Gas Limited Farm-out Agreement with BHP Billiton Falkland Oil and Gas Limited ("FOGL") is pleased to announce that it has enteredinto a farm-out agreement with a subsidiary of BHP Billiton, the world's largestdiversified resources company, over FOGL's 2002 and 2004 licences to the Southand East of the Falkland Islands. Highlights: O Under the agreement a minimum of two exploration wells will be drilled in the next 3 years O The farm-out agreement applies to FOGL's entire exploration acreage in the Falklands O BHP Billiton will acquire a 40% interest, with an option to increase its interest up to 65%, and will take over the operatorship of the licences O FOGL retains a substantial stake in the licences O BHP Billiton pays FOGL US$10 million in reimbursement of certain historical costs O New licence terms have been agreed with the Falkland Islands Government O The entry of BHP Billiton, a company with extensive deepwater exploration experience, into our licences confirms our view of the significant petroleum potential of the South and East Falkland Basins. Details of the agreement Under the terms of the agreement BHP Billiton will acquire a 40% interest in the2002 and 2004 licences and will also, take over the operatorship of thelicences, effective January 2008. In return BHP Billiton will pay four thirds of40% of the costs of the forward work programme, including the drilling of twoexploration wells and all other associated work to the completion of thisdrilling work. In addition, BHP Billiton will pay FOGL US$10 million inrelation to certain costs already incurred by the company. BHP Billiton also hasthe option to further increase its interest in the licences up to 65%. Underthis option arrangement, BHP Billiton will pay four thirds of its share of thecosts of the forward work programme up to the completion of the drilling of twoexploration wells, in relation to their additional interest and also, pay FOGLan additional contribution to historic costs on a pro-rata basis. This optionwill expire on 27 November 2007. Following discussions with the Falkland Islands Government it has been agreed toextend by 3 years the term of the first phases of the 2002 and 2004 licences, sothat they now expire in December 2010. As part of this change to the licenceterms a partial relinquishment of the 2004 licences will be made at the end of2007. The Falkland Islands Government has also recently extended the secondphase of the 'open door' licences to five years. The second phase of thelicences will therefore, run from January 2011 to December 2015. The existingwork commitments of the licences remain unchanged. Tim Bushell, Chief Executive of FOGL commented: "This is a landmark deal for FOGL. The introduction of a major company as afarm-in partner has been a key strategic objective over the last 18 months andwe are delighted to welcome a partner of BHP Billiton's calibre and expertise. The entry of BHP Billiton as operator provides us with their expertise indrilling in deepwater and sensitive environments, which combined with theiraccess to rigs will continue the exploration programme and lead to the drillingof the first exploration wells in our licences. BHP Billiton's commitment confirms our view that the South and East Falklandbasins are prospective and have high potential for the discovery of significantvolumes of oil and gas. We are now entering a very exciting phase for FOGL and the Falkland Islands. Theresults of our recent exploration programme and the introduction of BHP Billitonrepresent a significant step in realising the potential of the region." Steve O'Rourke, President, Exploration, BHP Billiton Petroleum, said: "We believe this substantial Falklands acreage will be a good addition to BHPBilliton Petroleum's global portfolio and we look forward to working with ourpartner to pursue this under explored area. With our strong focus on growth, wenow hold a significant interest in this high potential basin and will utilizethe talent of our team to safely execute an exploration program in the FalklandIslands." 2 October 2007 Enquiries: FOGL 020 7563 1260Tim Bushell, Chief Executive KBC Peel Hunt (Nominated Adviser) 020 7418 8900Jonathan Marren / Matt Goode College Hill 020 7457 2020Nick Elwes / Paddy Blewer www.fogl.com www.bhpbilliton.com This information is provided by RNS The company news service from the London Stock Exchange