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Monitor Energy to acquire up to 90% stake in Trinidad oil production

Published: 22:42 28 Jul 2010 EDT

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Monitor Energy (ASX: MHL) has entered into a binding Heads of Agreement (HOA) with SOCA Petroleum (SOCA) to acquire its rights for up to 90 per cent interest in a company whose wholly owned subsidiaries hold production licences for three blocks in producing onshore oilfields in Trinidad and a major local drilling company.

Following the acquisition Monitor will be a fully-funded oil production company with a significant daily production profile and identified exploration upside.

Independent experts Forrest A. Garb and Associates, Inc. have assessed that the producing fields contain oil reserves of proved plus probable (2P) of 4.8 million barrels and undeveloped Prospective Resources of 19.9 million barrels.

Current production at the project is approximately 700 bopd and, Monitor has a planned work programme to lift production to more than 3500 bopd.

The acquisition comes with established drilling inventory (9 rigs), personnel and operations all in place on site.

Monitor Energy Managing Director Jon Roestenburg said, “this is truly a company making transaction, we are acquiring a controlling interest in a company that has not only a pure crude play in an established oil environment, but also one of five onshore drilling companies in Trinidad.”

“There is significant potential for value enhancement, as we move from 1P to 2P and 3P, plus this is a relatively low risk exploration, drilling and production operation.”

“Onshore Trinidad is a low operating cost, high profit margin environment with oil production sold at the wellhead and transported to the Pointe-a-Pierre Refinery, which has capacity for all additional planned production,” he added.

The production acreage and operating wells of the project cover the Morne Diablo, Beach Marcelle and South Quarry oilfields, with the total acreage covering 13,253 gross acres on the southern coast onshore Trinidad.

Current production from the fields is approximately 700 bopd, however Monitor considers that a minimal work program could lift production to more than 3500 bopd within 36 months based on known reserves.

The production increase excludes exploration upside with independently identified possible recoverable resource from the Herrera formation which is producing on adjacent blocks.

In addition to the onshore acreage the proposed acquisition also includes an interest in the parent of a wholly owned drilling company located in Trinidad, which owns five onshore drill rigs, three production rigs, one swab rig, full workshop and pipe yard and storage tanks and facilities – representing substantial current and replacement value.

Fellow ASX listed oil and gas company Range Resources Ltd (ASX: RRS) is joining Monitor in this venture and is progressing agreements to acquire the other 10 percent equity share of SOCA, as announced by Range on 12 July 2010.

Monitor will use a combination of scrip and cash to purchase up to 90 per cent interest in SOCA Petroleum whose wholly owned subsidiary companies own the project and all associated assets.

Under the terms of the HOA, the company will issue two billion Monitor shares and make cash payment of US$59 million in consideration for the full 90 per cent interest.

In addition there are two milestone performance payments of 500 million shares, if the company achieves future production targets on the Project.

Following completion of the transaction, Monitor plans to use company-owned drilling rigs and equipment and, with cashflow from existing production, will be self-sufficient (other than initial working capital injection) in its forward program to increase production from 700 bopd to 3500 bopd within 36 months.

A much larger increase in production can be achieved with exploration success given the 3500 bopd target is based on known existing reserves, without including the exploration upside.

The planned forward development program comprises of replacement and infill and step-out wells and deeper horizon drilling on the licences, as the current fields exploit only 5 percent of the available area.

Australian corporate advisory firm Komodo Capital Pty Limited (Komodo), with the assistance of Wentworth Capital Management, has been appointed as corporate advisor and lead manager to raise the capital required for the transaction.

Marketing by both of these companies has to date attracted significant interest from several International institutions. The capital raising will also include a rights issue at the same prices as the intended placement the details of which will be announced shortly.

Komodo recently completed a Placement for the company under section 708(A)5 of the Corporations Act 2001 to raise $1.41 million (before costs) by the issue of 470 million shares at AUD$0.003 per share.

The funds raised via the Placement will be used to finalise due diligence on the transaction and future operations on the company’s existing portfolio of assets and general working capital.

The proposed transaction is subject to various conditions precedent including:

- the approval of Monitor shareholders at a General Meeting (expected to be held in September 2010);
- any necessary regulatory approvals;
- successful completion of due diligence by each party;
- raising approximately $US95 million (by way of a rights issue and placement) which will be applied to fund the transaction as well as applying towards the company’s existing projects and ongoing working capital commitments.

On completion of the transaction, it is proposed that Greg Smith and Mark Patterson will be appointed as Directors of Monitor. In addition, Walter Cukavac will become the Chief Operating Officer.

The company said the Board and management additions introduce regional operating expertise to the Board and are considered to strengthen and complement the current management structure.

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