Termination of Farmin Agreement with UOGG

RNS Number : 3596Q

Baron Oil PLC

11 September 2017

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY BARON OIL PLC TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

BARON OIL PLC

("Baron Oil" or "the Company")

Termination of Farmin Agreement with Union Oil & Gas Group

Baron Oil PLC (AIM:"BOIL") ("Baron" or "the Company") announces that the Farmin Agreement ("FIA") with Union Oil & Gas Group ("UOGG") has been terminated and Baron has taken back its full 50% working interest share in Peru Block Z-34.

After several months of discussion and negotiations, the board came to the decision that it would serve no useful purpose to pursue legal action to wind up UOGG in the British Virgin Islands, since the corporate structure is such that there are no financial assets held in the company.  In addition, to enter into such action would severely prejudice ongoing farm-out discussions with third parties and also negatively impact the status of the Contract Licence for Block Z-34.  In view of the short time frame remaining on the Contract, it was deemed essential that a new working relationship be established quickly with UOGG that would enable Baron to play a full part in both the ongoing operations and the farm-out discussions. The failure of UOGG to meet its financial obligations following the approval of the Public Deed in February 2017 meant that Completion did not take place under the terms of the FIA and a Termination Agreement to the FIA has now been negotiated and agreed between Baron and UOGG with effect from September 8^th 2017.

No funds have been received from UOGG since the Contract Operating Agreement was terminated at the end of April 2017 and the effect of the Termination Agreement is that UOGG has no liability to pay the US$2 million that should have been paid on Completion.  The net cash effect of this on Baron, taking into account local taxes and other costs that would have been payable but were conditional on the receipt of this US$2 million, is a US$1.16 million net loss to Baron' projected cash reserves. Costs incurred under the FIA from April to August 2017 will still be due from UOGG but, as from September 8^th, all costs on Z-34 will be shared 50:50 between Baron and Plectrum Petroleum Ltd Succursal del Peru (a wholly-owned subsidiary of UOGG). Baron and UOGG will together take the steps necessary to reverse the effect of the Public Deed executed in February 2017.

Bill Colvin, Chairman of Baron commented:

"UOGG's failure to abide by the terms of the FIA was extremely disappointing, placing Baron in a very difficult position, and the Termination Agreement is definitely not the best financial outcome for Baron. However your board has finally concluded, with local legal advice, that to take any other route would be likely to destroy all remaining value in Block Z-34 and we would still be highly unlikely to recover any funds that would have been due to the Company under the FIA.  In addition, Baron faced the possibility of a 32% tax charge in Peru whether or not UOGG paid the US$2million.

At this critical stage in operations on the Block it is essential that the partners work as closely together as possible on the farm-out negotiations and try to preserve the value of the Block."

For further information:

Baron Oil Plc                                                                                                     Tel: [phone]

Malcolm Butler (CEO)                                                                   

Cantor Fitzgerald Europe (Nominated Adviser and Broker)        Tel:  [phone]

Sarah Wharry (Corporate Finance)                                

Alex Pollen (Corporate Broking)

SP Angel (Joint Broker)                                                                                Tel:  [phone]

Richard Hail / Richard Redmayne

 

END

 

 

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