Sky to contest Mubarek termination

Sky Petroleum has received notice that its interest in Mubarek field offshore UAE has been terminated.

Offshore staff

AUSTIN, Texas -- Sky Petroleum has received notice that its interest in Mubarek field offshore UAE has been terminated. The company, however, may seek to contest the decision.

Mubarek is 50 km (31 mi) offshore Sharjah, in 200 ft (61 m) of water. Buttes Oil and Gas Co. International, a subsidiary of Crescent Petroleum International, was awarded the production concession in 1969. The field has two producing intervals, the light oil Ilam/Mishrif reservoir at 12,500 ft (3,810 m) subsurface depth, and the gas/condensate Thamama reservoir at 13,500 ft (4,115 m).

Development started in the early 1970s, leading to first oil in 1974. At peak, oil production reached 60,000 b/d. Sky estimates total cumulative recovery to date at over 100 MMbbl.

According to Sky, Buttes solely and unilaterally has determined that the field has reached the end of its economic life, and has notified Sky’s participating subsidiary Sastaro that responsibility for operating the field and its facilities has reverted to H.H The Ruler of Sharjah. The participation agreement Sastaro and Butte signed in May 2005 is, therefore, terminated.

Under this agreement, Sky claims, Sastaro committed $25 million towards drilling and completion costs relating to the H2 and K2-ST4 in-fill wells, giving Sky entitlement to a share of the wells’ future production revenue.

Sky says its management is evaluating its rights under the 2005 agreement, and will take any actions required to protect the company’s investment in the field. Both in-fill wells, it claims, still produce commercial quantities of oil, with significant residual value. Therefore, it considers the terms of the agreement valid.

The company adds that Crescent has promised to reimburse it for its share of production revenue arising from the December off-take.

01/08/2010

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