Simba Energy Inc. (TSXV: SMB) announced on Tuesday, January 28, 2014, that it has signed an exclusive Letter of Intent (LOI) to farmout its Production Sharing Contract (PSC) for Blocs 1 & 2 in onshore Guinea with a private investor group based in Calgary, Alberta. The investor group can earn up to a 45% interest in Simba’s Guinea PSC with a total investment of US$6.5 million. Simba Energy shares rose 9% to six cents following the announcement.
After execution of the LOI, Simba will receive US$700,000 for cost recovery, which it expects in the next few days, and upon completion of the Definitive Agreement(s), the investor group will spend US$3.8 million for an airborne FTG (Full Tensor Gravity Gradiometry) survey that will cover a minimum of 9,000 square kilometres. FTG results are the criteria larger energy companies and drillers use to determine actual drill targets.
This total initial expenditure of US$4.5 million will earn the investor group a 25% interest in Simba’s Guinea PSC. As well, the group will receive the option to earn an additional 20% interest by carrying out a 2D seismic program with a minimum expenditure of US$2 million to bring the blocks to drill ready status.
Upon completion and interpretation of seismic results, both parties mutually agree to either drill a first exploration well, with each party responsible for its own share of costs, or; to farmout the project to other third parties on mutually acceptable terms.
“This LOI provides immediate recovery of expenses to Simba and accelerates the completion of an FTG airborne survey. The LOI also provides the Investor Group with an option to carry out additional seismic surveys to support the selection of specific drill targets in Guinea. The US$700,000 payment allows Simba to recover a portion of its costs incurred in Guinea to date. This LOI and the pending Definitive Agreement allows the Guinea project to advance while Simba and its shareholders retain significant interests in Blocks 1 & 2. These blocks are highly prospective given the exploration work completed to date by the Company and should provide Simba with drill ready targets later this year. It is expected that the Definitive Agreement(s) will replace the LOI before the end of Q1 2014,” said Simba President & CEO Robert Dinning.
This latest announcement from Simba Energy comes less than three weeks after the company reported thatit has signed a letter of intent to farmout up to 40% of Simba’s interest in the PSC for Block 2A, onshore Kenya, for a total commitment of US$8.6 million.
Kenya has seen the discovery of oil for the first time in East Africa as Africa Oil (TSXV: AOI), in a JV with Tullow Oil, continues its success with the oil discovery at its Kenyan block 10BB. Investors are looking for other plays that can emulate such success and Simba is clearly well positioned with a big land package and its geologically attractive positioning.
Companies such as Simba Energy are turning increasingly to Production Sharing Contracts (PSC) as institutional financings are becoming more and more difficult in this economic environment.
To learn more about Simba Energy, you can view their initiation research
report, research bulletins, analyst commentaries and CEO video interview
on their SmallCapPower.com Investor Hub:
HERE.
About Simba Energy:
Simba Energy Inc. (TSXV: SMB) is an independent Canadian-based oil and gas exploration company with active onshore PSCs in Kenya, Guinea and Chad. Simba is exploring and developing onshore oil and gas prospects in under explored regions across Africa.
Disclosure
Ubika Research has received compensation from Simba Energy to provide
analyst research coverage.
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