TIERRA DEL FUEGO, ARGENTINA
The Company's 25.78% working interest in the Tierra del Fuego ("TDF") area of Argentina covers approximately 489,000 acres (126,000 net acres) in the Austral Basin and includes the Las Violetas, Angostura Sur and Rio Cullen Exploitation Concessions (the "TDF Concessions"). In July of this year, Crown Point and its partners received all necessary governmental approvals for a 10 year extension of the TDF Concessions until November 2026.
Crown Point's TDF Concessions are high quality, natural gas weighted assets possessing the capability to deliver increased levels of production and reserves in an expected increasing natural gas price market.
Crown Point and it partners have defined the first 10 drilling locations on the Las Violetas Exploitation Concession. Eight of the proposed wells are development locations in the Las Flamencos pool. These locations are proximal to existing infrastructure and management believes that these wells could be completed and placed on production in a relatively short time frame. Two exploration wells are planned for the Las Violetas Exploitation Concession and are located on undrilled fault bounded blocks on trend with producing wells. Successful drilling results on these exploration wells would prove up additional development drilling locations.
Negotiations to obtain a long term contract for a drilling rig for TDF are in an advanced stage.
New Gas Program - Incentive Payments for Incremental Gas Production
On August 15, 2013 Crown Point submitted to the Argentine Government its official proposal for participation in the New Gas Program. The New Gas Program is designed to encourage and compensate gas producers by paying cash compensation to companies who increase production above a corporate base production rate ("BPR") provided that their natural gas production remains at or above a negotiated committed level of production. The BPR will be declined annually on January 1 by 7% as set by the government.
The BPR for a producer is assessed as the average corporate daily production rate during December 2012. The compensation for any succeeding month is calculated by multiplying the BPR by the average price received by the producer for its gas in 2012 and adding to that the volume of gas delivered in excess of the BPR multiplied by $7.50/mcf. If the calculated theoretical revenue is higher than the sales receipts for that month, the government will pay to the producer the difference. If the calculated theoretical revenue is less than sales receipts for that month, the producer will receive nothing and is not penalized.
To participate in the New Gas Program, a producer has to commit to supplying gas to the market over the five year term of the program. Should the producer fail in any 3 month period to supply its committed volumes, it is required to buy gas in the open market to cover the shortfall. It is possible that the purchase price of the shortfall volumes could be higher than the price received under the New Gas Program.
It is important to recognize that gas sales and volumes in Argentina are normalized to MMBtu, where 1 MMBtu = 1 mcf (@9300kCal). For the purposes of the New Gas Program, all volumes and prices are normalized to this reference. In the case of Crown Point's TDF production, the heat content is higher than this reference by 8% to 10%. Accordingly, our physical sales volumes are increased by 8% to 10% when comparing against BPR and committed sales volumes.
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