HOUSTON -- BPZ Resources Inc. has signed a memorandum of understanding (MOU) with Shell Exploration Co. (West) B.V. to negotiations for a farm-out agreement in Peru. Negotiations on the agreement will begin immediately and are expected to conclude towards the end of the year.
The companies hope to create a 50/50 venture in blocks Z-1, XIX, and XXIII. The three offshore blocks are about 1,300 km (800 mi) north of Lima, Peru. In March, BPZ found an estimated 60 MMbbl of crude oil and 40 MMcf (1.1 MMcm) of natural gas in the same region off Peru's northern Pacific coast.
"With Shell as partner, we would have a company with the key elements needed to fully develop our assets: deep water expertise to develop the prospects in block Z-1 that are in water depths from 500 to 1,000 ft (152 to 305 m); the ability to market and monetize the gas potential in our blocks through large-scale projects such as LNG; and the access to people and equipment that will help us appraise the gas and oil potential more quickly," says Manolo Zúñiga, BPZ president and CEO.
Under the agreement, Shell will commit to an exploration and appraisal program with three phases, which could total approximately $300 million. The work program is geared towards appraising the Mancora gas play and the deepwater leads in Block Z-1. The program primarily would consist of 2D and 3D seismic surveys in Blocks XXIII and Z-1, respectively, and the drilling of approximately 12 new wells.
BPZ Energy will get 51.75% of any oil or gas produced and Shell will claim 48.25%.
This excludes the carved-out areas: the oil and gas assets in Corvina, Delfin, and Mero, as well as the oil assets in Albacora. BPZ would serve as the operator of record and will retain 100% of the assets in these areas. Shell will have the option to buy a 50% stake in any one of the carved-out areas, beginning in July 2012 and ending in January 2015, at market price.
Additionally, Shell and BPZ will refurbish the platform and drill the first well in Albacora, where BPZ initially would retain 100% of oil assets and 50% of gas assets discovered. If gas is sufficient to warrant a LNG project, around 4 tcf (113 bcm) of gas reserves, BPZ and Shell will set up a 50/50 JV, and Shell would operate the project.