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New World Oil and Gas Signs Farm-out Deal for Blue Creek Project, with Drilling to Start in October

New World Oil and Gas has signed a farm-out agreement with ThermaSource International for New World’s Blue Creek project, which is located in the producing Peten Basin in north-west Belize. The agreement will substantially save drilling costs and minimise shareholder dilution, says the junior oil explorer, and will allow New World “to retain as much of the upside potential as possible”.

New World has also signed a contract with ThermaSource to commence drilling in October 2012 at the drill-ready B Crest prospect at Blue Creek. B Crest has unrisked P50 prospective resources of 92 million barrels of oil. Mobilisation of the drill rig will start immediately. The drilling contract covers this first well and options over a second and third well.

The deal with ThermaSource reduces the daily drilling rate by a quarter in return for granting a 5 per cent participating interest in each well drilled on the three ‘drill-ready’ prospects identified at the Blue Creek project.

New World has the option to buy back ThermaSource’s 5 per cent participation in each well at market price within 18 months of any well being declared commercial, at a value established by an agreed third party reserves auditor.

Operationally, a base camp at Blue Creek is now fully functional and work will begin shortly on preparing a drilling site, access roads and local services. Meanwhile, negotiations remain ongoing with other oil and gas companies operating in Belize, with the aim of further reducing costs by sharing the costs of rig mobilisation and demobilization.

New World chief executive William Kelleher said, “The farm-out agreement and drilling contract with ThermaSource are significant milestones in the development of New World as a leading, diversified oil and gas exploration company, and we are delighted to announce that we are on target to commence drilling at Blue Creek in October 2012.

“Not only is this a hugely important step for the company, it also allows us to cut drilling costs by up to another 25 per cent while only farming down a 5 per cent working interest in each well of our highly prospective project, rather than the entire production sharing agreement. Combined with the Blue Creek farm-out agreement amendment announced in June 2012, we have now reduced drilling costs by up to 50 per cent from original forecast figures.

“In addition, B Crest will be the first Blue Creek prospect to be drilled, with impressive unrisked P50 prospective resources of 92 million barrels and a POSg [chance of success] of 1 in 5 as confirmed by our Competent Person.”

Broker Shore Capital commented: “With reiteration of the drilling timetable and expectations of substantially reduced well costs, we now see scope for a further upgrade to our latest risked NAV [net asset value] estimate of 30p/share.” This compares with New World’s current share price of 9.6p.

In addition to its projects in Belize, New World also operates two onshore projects in Denmark located in producing basins covering a combined area of over 2.6 million acres. This makes New World the largest holder of acreage in Denmark.

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