Shona Energy Company, Inc. Signs Letter of Intent to Supply Natural Gas to Altenesol LNG Colombia, S.A.S.

abarrelfullabarrelfull wrote on 11 Oct 2012 08:38
Tags: altenesol colombia lng s-america shona

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Shona Energy Company, Inc. (TSXV: SHO)("Shona" or the "Company"), today announced that its wholly-owned subsidiary, Geoproduction Oil and Gas Company of Colombia ("Geoproduction"), has signed a Letter of Intent ("LOI") with Altenesol LNG Colombia, S.A.S. ("Altenesol") to supply natural gas for Altenesol's Nataly I liquefied natural gas ("LNG") Project (the "Project"). Under the terms of the LOI, Geoproduction has agreed to enter into negotiations for a Definitive Agreement that will provide the following:
  1. Sale of 17 million cubic feet per day (MMCFD) of natural gas for a period of ten years. Based on initial discussions, the starting price will be negotiated within a range of $4.50 to $5.25 per MCF with an annual price escalation. The structure of the contract will be on a "take or pay" basis for both parties.
  2. The parties have an option to extend the contract five years dependent on the results of the four- to five-well drilling program that Geoproduction will commence in mid 2013.
  3. Milestones to be completed by Altenesol over the next six months that include, but are not limited to:
    1. the execution of a Definitive Agreement between Geoproduction and Altenesol by December 1, 2012;
    2. the conversion of existing end user LOIs to definitive agreements;
    3. the ordering of equipment, and
    4. the initiation of construction of an LNG plant.

Altenesol estimates that it will require approximately 17 MMCFD of natural gas for its planned Nataly I LNG Plant and intends to construct the plant in Colombia's Cordoba Province - near Geoproduction's Jobo Station which processes the natural gas produced from Geoproduction's Esperanza Block. Altenesol anticipates the plant will be completed in approximately two years and plans to transport and market the LNG product once the plant becomes operational.

"Altenesol's Project is an innovative approach to marketing natural gas in Colombia. If the milestones required to finalize this Project are met, it would more than double our natural gas sales volume and significantly increase long-term cash flow," said James L. Payne, Chairman and CEO of Shona Energy. "Based on the encouraging results of the recently completed 3-D seismic survey of Esperanza and our existing development and exploration project inventory, we believe that our reserves exceed those required to meet the commitments of the potential agreement. Shona is proactively planning a four- to five-well drilling program in 2013 to establish additional reserves in order to fully commit to the proposed five-year term extension and establish a basis for other gas contracts."

Shona's planned four- to five-well drilling program in 2013 will target only 3-D seismic-defined exploration prospects. It is anticipated that any additional exploration and development drilling on the block will be in response to future gas sales agreements. Funding for the 2013 drilling program is anticipated to come from existing cash and future cash flow.

The Collarini Associates NI 51-101 compliant reserves report effective January 1, 2012 assigned Shona's Esperanza Block 2P natural gas reserves of 95 billion cubic feet ("Bcf") and possible reserves of 78 Bcf. In June 2012, Shona completed its fourth seismic program with the acquisition and processing of 103 square kilometers of 3-D seismic and 14 kilometers of 2-D seismic on the Esperanza Block.

(1) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable reserves.

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