fantastic karoon, page-24

Farmouts r a way to reduce one's cash burn should the disc b a duster or a big'un.

In case of the later scenario one could look at more capex/opex to develop the prospect, so better off getting an expert onboard (not simply for their chq book).

Each of PEN's target had a different CoS. Sabia-1 was at 15% (142 mmboe), Canario is 20% (231 mmboe) & Jandaia 24% (302 mmboe). They r not going deeper below the salt, as the first disc indicates their target was the Cretaceous sands. KAR shot the WAz3D, so know a bit more.

Note that PEN (known as Norse Energy back then) & KAR were awarded these blocks at the same time (Round9) with PEN commencing its farmout process in June'10 (they used Stellar Energy to run roadshows etc, refer their website), finalising the Transoean semi-sub & spuddung the first well in July this year. Nxt well is practically a free-hit for KEI's Kookaburra (or PEN's Canario) (as mentioned in their Annual report Pg12)

PEN had a 50:50 stake initially with Vanco & farmed out its 35% to them for $14.7 mil, which covered the cost of seismics & share of drilling 3 wells (first disc was ann'd on 13th sept12).

The rules of engagement r a bit complex over there, as one could farmout & still wait for the ANP (Brz authority) to give the go ahead.

Nevertheless, all this bodes well for KEI, as the farmout conditions could b somewhat like this in my view, i.e.

1) seis costs payback (US$xx mil) plus
2) free carry KEI's share of drilling over all wells &
3) mayb a 'milestone' cash incentive &
4) a clause to increase/decr the equity at a later stage

The Blackford Dolphin is already lined up for November by KAR, after Anadarko hand's it over (see link below). So IMO, the timing seems right for a farmout update leading to November.

http://www.fredolsen-energy.com/arch/_img/9087945.pdf