GeoGlobal Resources Inc. has disclosed an update of certain of its exploration activities conducted during the quarter ended June 30, 2008 and through August 13, 2008. The Company advised that on August 11, 2008 it filed its quarterly report on Form 10-Q for the period ending June 30, 2008.
At June 30, 2008, the Option Agreement granting the Company the right to re-acquire a 30% interest in exploration blocks located in the Arab Republic of Egypt had expired. As the Company has not yet negotiated an additional extension of the expiration date, the Company determined the value of the Egyptian blocks to be impaired at June 30, 2008 and therefore has charged to the statement of operations the full carrying value of the Egyptian properties. The Company is continuing to seek a new option agreement or an extension of the earlier agreement.
KG Offshore Block
As at August 13, 2008, twelve wells have been or are being drilled on this block. Of the twelve wells, eleven are exploration wells and one is an appraisal well, as defined in the related Production Sharing Contract (PSC). Five wells (KG-8, KG-15, KG-16, KG-17 & KG-28) have been notified to the GOI as discovery wells on this block.
The KG#22 well was drilled to a total depth of approximately 6,000 meters and a testing program commenced in May which continued through into July.
The KG#31 well was drilled to a total depth of approximately 5,900 meters. The well has been cased and logged and is awaiting a testing program.
The KG#19 well commenced drilling in May 2008 and was drilled to approximately 897 meters before mechanical issues forced the rig to suspend operations. The rig is being returned to port for repairs and as such, well KG#19 has been suspended until the rig returns or another rig becomes available.
Subsequent to June 30, 2008, the KG BRU#1 exploratory well, situated approximately 8.5 kilometers NE of the KG#30 well, commenced drilling with the Saipem Perro Negro 3 jack-up drilling rig. This well is the second exploratory well to test the northern graben in the KG Offshore Block with an intended target depth of approximately 2,650 meters. The KG BRU#1 well continues to drill and is currently at a total depth of approximately 2,000 meters.
The Company has a net 5% carried interest in an area of approximately 1,850 square kilometers known as the “KG Offshore Block.” This net interest is after reflecting a March 2003 Participating Interest Agreement whereby one half of a 10% carried interest in the KG Offshore awarded to the Company was transferred to an affiliate of the Company at that time. The Company’s co-parties in this venture are Gujarat State Petroleum Corporation (GSPC) and Jubilant Offshore Drilling (Jubilant).
The Company is continuing to await the approval of the Directorate General of Hydrocarbons (DGH) and the Government of India (GOI) of a merger of the exploration phases of the drilling program on this block. In addition, GSPC, as operator of the drilling program, exercised an option to substitute a total meterage drilled commitment in the new work program phase that would be irrespective of the number of wells drilled. Under these new policies, any contractor who exercises this option would be required to relinquish 50% of the contract area at the end of the New Phase I. We are awaiting confirmation that the exercise of the option has been accepted.
If the merger is granted, the minimum work program (MWP) for the New Phase I would have a total meterage drilled requirement of 33,102 meters, of which GSPC informed DGH that as at September 17, 2007 a total of 33,224 meters had been drilled, and as such the MWP for the New Phase I would have been completed. At the end of the New Phase I on March 11, 2008, the contracting parties were required to relinquish 50% of the Contract Area of the KG Offshore Block that is not a Discovery or Development Area as defined in the PSC.
Approval from the GOI of the merger of the initial Phase I and II into a New Phase I along with the requirement of the relinquishment of 50% of the Contract Area is currently outstanding. The New Phase II, if granted, would have a term of 1.5 years expiring September 11, 2009 and the drilling of a further 12,250 meters would be required in order to meet the MWP. The approval from the GOI for the merger of the MWP of existing Phase II and Phase III as New Phase II is also currently outstanding.
As previously disclosed, unless approval is granted by the GOI to merge Phases I and II of the work program, the Company may be liable for the consequences of non-fulfillment of the minimum work commitment in the stated time frame under the PSC including the loss of its interest in the KG Offshore Block. In the event the PSC for the KG Offshore Block is terminated by the GOI, the contract provides that each party to the contract is to pay to the GOI its participating interest share of an amount which is equal to the amount that would be required to complete the minimum work program for that phase. The Company is of the view that GSPC, under the terms of its Carried Interest Agreement (CIA), would be liable for the Company’s participating interest share of the amount required to complete the phase.
On May 19, 2008, GSPC submitted a report to the DGH seeking a declaration of discovery with regard to the commercial viability of the portion of the block where the KG#8 discovery is located (Deen Dayal) and recommend that discovery as a Commercial Discovery.
On May 23, 2008, the Operating Committee recommended that GSPC seek approval from the DGH and GOI of a proposal to continue the exploration activity in this block without relinquishing any area and retaining the entire Contract Area until the end of the six and one half years exploration period under the PSC. We continue to await a response on this proposal.
Carried Interest Agreement Dispute
As at August 13, 2008, we remain engaged in discussions with GSPC seeking a resolution to this dispute, however, no agreement has been reached.
KG Onshore Block
During the three months ended June 30, 2008, Oil India Limited (OIL), as operator, completed the reprocessing of the pre-existing 564 LKM of 2-D seismic.
OIL intends to commence a 50 LKM experimental high resolution 2-D seismic acquisition program. The remaining work commitments of a gravity magnetic and geochemical survey along with the 3-D seismic acquisition program are anticipated to commence in the third quarter of 2008 followed by the subsequent drilling of the first of the twelve exploratory wells.
The Company has a 10% participating interest in an area of approximately 548 square kilometers known as the “KG Onshore Block”. This block was awarded to the Company and OIL in the NELP-VI bidding round.
On February 18, 2008, the Government of Andhra Pradesh issued a partial petroleum exploration license (PEL) over 511 sq km. OIL has requested the Government of Pondicherry to grant the PEL over the remaining 37 sq. kms. lying in the district of Yanam.
Prior to submission of the Company’s NELP-VI bid, the Company entered into an agreement with OIL to increase its participating interest by 15% to 25% in this exploration block, subject to the availability of sufficient net worth and GOI consent, which remains outstanding.