Macro Tsimmis

intelligently hedged investment

BPZ Energy (BZP) update #12

Posted by intelledgement on Thu, 26 Jun 08

Great news! Our spec E&P play, BPZ Energy (BZP) today announced the signing of a non-binding memorandum of understanding with Shell Exploration Company (West) B.V., a wholly owned indirect affiliate of Royal Dutch Shell plc (RDS-B), which “allows both parties to move forward with their negotiations on a possible Farm-out Agreement (Agreement) with the ultimate goal of jointly developing Blocks Z-1, XIX and XXIII in Northwest Peru into large-scale oil and gas ventures, including regional power generation, gas supply for local and regional industry, and LNG,” according to the press release. The objective is to execute a binding agreement by the end of 2008. The stock zipped up 15% to close at a new all-time closing high of $28/share.

The memorandum outlines what the agreement would specify in some detail. Shell would commit up to $300 million for “2D and 3D seismic surveys in Blocks XXIII and Z-1, respectively, and the drilling of approximately 12 new wells.” BZP retains 100% interest in any oil and the two companies split any gas finds 50-50 in four specified areas; Shell gets an option to purchase a 50% interest in the oil in one area at prevailing prices between 2012 and 2015. Shell also gets an option to purchase a 50% interest in the gas-to-power project. Interest in any finds outside the four areas are split 51.75% for BZP and 48.25% for Shell. If 4 Tcf of gas reserves are discovered—enough to warrant a LNG project—BZP and Shell will set up a 50%/50% joint venture to develop it.

“This MOU to negotiate the final Farm-out Agreement is an important step for both BPZ and Shell,” stated BZP CEO Manolo Zúñiga. “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 feet; 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…. I believe that we have found the right potential partner for BPZ. Accelerating the exploration and development of the assets we have in the three blocks under consideration will be beneficial to both companies, to BPZ’s shareholders, and to Peru.”

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