Azabache Energy Inc.
TSX VENTURE : AZA

Azabache Energy Inc.

May 24, 2012 12:16 ET

Azabache Renegotiates Antares Block Terms

CALGARY, ALBERTA--(Marketwire - May 24, 2012) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Azabache Energy Inc. ("Azabache" or the "Company") (TSX VENTURE:AZA) announces that is has renegotiated the terms of its farm-in agreement ("FOA") with Petroleos del Mar ("Petromar") on the Antares Block in Colombia. The renegotiation results from delays in obtaining permits to drill 2 exploration wells (Lemaya and La Mona) as required under the Exploration & Production Contract ("E&P Contract") between Petromar and the Agencia Nacional de Hidrocarburos of Colombia ("ANH"). The revised FOA remains divided into the following 3 phases: (i) the drilling of the Lemaya well, (ii) the drilling of the La Mona well and (iii) the completion of a 3D seismic program. To date the Company has contributed US$1.9 million in escrow toward the program costs.

The following table shows the previous FOA and the new terms (amounts in US dollars):
Original Deal
Lemaya Well La Mona Well 3D seismic Program costs Contingent
payments
Potential cost
Cash 1,500,000 1,500,000 500,000 3,500,000 500,000 4,000,000
Program 2,400,000 2,400,000 4,000,000 8,800,000 - 8,800,000
Shares ($ in shares) 1,000,000 800,000 800,000 2,600,000 1,500,000 4,100,000
4,900,000 4,700,000 5,300,000 14,900,000 2,000,000 16,900,000
Amended Deal
Lemaya Well La Mona Well 3D seismic Program costs Contingent
payments
Potential cost
Cash 1,500,000 - - 1,500,000 3,000,000 4,500,000
Program 2,400,000 2,400,000 4,000,000 8,800,000 - 8,800,000
Shares ($ in shares) - 1,300,000 1,300,000 2,600,000 1,000,000 3,600,000
3,900,000 3,700,000 5,300,000 12,900,000 4,000,000 16,900,000

The Company may be required to make additional payments if the program is successful (contingent payments). Under the amended FOA the Company would pay a success fee of $1,500,000 ($500,000 through the issue of common shares of the Company) if one of the wells were successful; $3,000,000 ($1,000,000 through the issue of common shares of the Company) if both wells were successful; and an additional $1,000,000 if the program results in a discovery of reserves in excess of 5 million barrels.

While the permit to drill the Lemaya well had previously granted, it was suspended pending approval of the entire drilling program required under Phases 4 and 5 (unified) of the E&P Contract by the Environmental Ministry of Colombia. Under the amended FOA, if the permits for the Le Mona well are not obtained by August 1, 2012 but the Lemaya well is spudded by August 15, 2012, the Company is relieved of all obligations to make the above payments, other than those relating to the Lemaya well.

If, by August 15, 2012, the Lemaya well has not been spudded, the Company may elect, by giving notice to Petromar, to either:

  1. Terminate the amended FOA obtaining the reimbursement of all amounts paid under the Antares agreements plus interest calculated at a rate of twelve per cent (12%) per year; or
  1. Affirm the amended FOA in which case the Company retains its assigned 50% working interest in the Antares block with no further payment required. In addition, the funds contributed to escrow with the intent of funding the drilling of the Lemaya well would be returned to the Company or would be used by the Company to cover its share of any further activity on the block.

In connection with the FOA, the Company has executed an extension of the loan agreement signed in October 2011 between Trayectoria Oil and Gas S.A. ("Trayectoria"), an affiliate of Petromar, and Azabache for US$1,000,000. The due date for the loan has been extended to August 15, 2012. The principal and interest due thereunder, may be offset against any payments to be made by Azabache under the amended agreement and is secured by a 10% interest in the Antares Block and a promissory note executed by Trayectoria.

The issuance of any common shares by the Company under the amended FOA is subject to the receipt of all necessary regulatory approval, including TSX Venture Exchange Inc.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful. The securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the Company's acquisition of a working interest in the Antares Block; the receipt of regulatory approvals; exploration and development activities, its future operations and the completion of its drilling programs. The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Azabache, including with respect to the anticipated timing for completion of drilling of the exploratory wells and the completion by Petromar of its obligations under the amended FOA. Although Azabache believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Azabache can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations. The forward-looking statements contained in this document are made as of the date hereof and Azabache undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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