is whn drilling wa-460-p this year?, page-49

palta-1 storyline from 'octanex'

WA-384-P, WA-385-P, WA-394-P – SOUTHERN EXMOUTH SUB-BASIN – OFFSHORE WESTERN AUSTRALIA

Background:
The Octanex Group originally held a 100% working interest in all three permits but, following a transaction with Shell Development (Australia) Pty Ltd (Shell), now holds only residual and royalty interests in each one.

The permits were granted by the Designated Authority on 21 August 2006 (re WA-384-P and WA-385-P) and 21 February 2007 (re WA-394-P), all for a period of six years. They comprise a total of 134 graticular blocks (approximately 10,628 km² or 2,626,235 acres in total) in the Southern Exmouth Sub-basin part of the Carnarvon Basin, offshore Western Australia Maps.

In February 2008, the Octanex Group entered into agreements with Shell for the disposition to Shell of a 100% working interest in the permits but retained certain rights. The Octanex Group holds residual rights in each of the permits in the form of discovery payments and royalties, as well as rights of reconveyence.

Shell has carried out extensive seismic operations over the permits by conducting the Guacamole 2D survey. That survey acquired 3,440 km of new 2D seismic data that has been processed and interpreted. Shell has also made the commitment to Octanex to drill a well in WA-384-P prior to the end of year 6 of the permit (i.e. by August 2012) and acquired a new 3D site survey of 680 km² named Salsa.

Shell has recently advised that drilling operations are being planned for 2012, subject to receipt by Shell of all required regulatory approvals. The well, to be known as Palta-1, is to be drilled in water depths of approximately 1350m and to a total depth of 5325 to 5675m.

With respect to the WA-385-P permit, Shell was initially required to make a decision by 21 August 2010 to commit to drill a well in the permit or re-assign a 100% interest in the permit to Octanex if no drilling commitment was made. Octanex agreed to defer Shell’s requirement to drill a well until year 3 of any renewal of this permit, if and when renewed, on the basis that Shell has committed to acquire a new seismic programme in WA-385-P in year 6 of the initial permit term.

Similarly, Shell was initially required to make a decision by 21 February 2011 to commit to drill a well in the WA-394-P permit or re-assign a 100% interest in the permit to Octanex if no drilling commitment was made. Octanex agreed to defer Shell’s requirement to drill a well until year 3 of any renewal of this permit, if and when renewed, provided Shell commits, before 30 November 2011, to acquire a new seismic programme in WA-394-P.

Shell is a world class operator and is committed to the conduct of a thorough assessment of the exploration potential of the three permits. While the Octanex Group no longer has any direct equity interest in the permits, it retains significant access to the upside exploration potential in them through the mechanism of the discovery payments and the overriding royalty described below.

Specifically with respect to future related terms of the Octanex Group’s agreements with Shell:

Shell has agreed it must either commit to a well in each permit (within the timeframes outlined above) or reassign the 100% interest for nil consideration for any permit where no well commitment is made.
Shell has agreed to make two tranches of Discovery Payments (being either (a) or (b)) to the Octanex Group for any Discovery (as defined in the agreement) made in a permit but limited to a maximum of three Discovery Payments per permit. Within six months of having made a Discovery Shell must either:
(a) Pay US$5,000,000 to the Octanex Group; or
(b) Reassign to the Octanex Group a 100% interest in the permit in which the Discovery was made.
Following an initial Discovery Payment as described above, if Shell:
(a) spuds an appraisal well in respect of the Discovery; or
(b) applies for a production licence or retention lease in respect of any Discovery,
then Shell must pay a further US$5,000,000 to the Octanex Group.
Shell has also granted the Octanex Group a 1% Overriding Royalty (as defined in the agreement) payable on the basis of the gross assessable petroleum receipts recovered from a permit.
If at any time Shell wishes to exit from any of the three permits, a 100% interest in the relevant permit must be offered back to the Octanex Group.
Work Programme:
The permits are all in year 5, where the work programme obligations are to carry out geotechnical studies, followed by an exploration well in year 6 of each permit. Shell has committed to the well obligation in WA-384-P, has applied to the Designated Authority to vary the year 6 work obligation in WA-385-P and has further time to decide on the year 6 work obligation for WA-394-P.

As outlined above, Shell can decide whether to continue in each permit or withdraw and offer to re-assign the 100% interest as required by the farmin terms. Until such decisions are made, the Octanex Group has no exposure to costs, nor any work obligation to perform in any of the permits.

http://www.octanex.com.au/projects.html#2