SOURCE: Blugrass Energy Incorporated

October 16, 2009 17:04 ET

Blugrass Energy Inc. Announces "Farm In" Agreement With Doral Energy Corp.

CALGARY, AB--(Marketwire - October 16, 2009) - Blugrass Energy Inc. (OTCBB: BLUG) is pleased to announce that Doral Energy Corp. ("Doral") has entered into negotiations with Blugrass Energy, the owner(s) of the Cave Pool Unit located in Eddy County New Mexico, as a result of the October 12, 2009 closing by and between Blugrass Energy Inc. and Robin Hood LLC. The purpose of this letter of intent is to set forth the basic terms and conditions under which a transaction of this nature ("Farm In") would be contemplated.

Doral can acquire a 40% Working Interest in the Cave Pool Unit located in Eddy County New Mexico, with Blugrass retaining a 60% working interest in the assets.

Additionally, Doral will grant Blugrass access to proprietary geological and engineering data on Doral's adjacent oil and gas leases from which Doral has expended substantial time and capital. Doral will be responsible for preparing all geological and engineering data necessary in order to prepare a 3rd party engineering evaluation report by Russell K. Hall and Associates of Midland, Texas. Doral will be responsible for 100% of the costs of the 3rd party engineering report. Doral will be responsible for 100% of the preparation and land work associated with receiving full legal title opinions on the Assets. Doral is fully aware that Blugrass has recently acquired these rights from Robin Hood LLC.

Doral will assume operations from Blugrass in a Joint Operating Agreement that will be part of the closing schedules of a final agreement between Blugrass and Doral. The Joint Operating Agreement will outline per well operating charges, that will be at the cost of Doral and Doral will not pass along supervision charges which will be further set forth in an Addendum. This addendum will only be extended to Blugrass. Doral will ensure that all appropriate insurance and bonds will be in place complying with both State and Federal regulations. Additionally, Doral will represent that they are currently a registered oil and gas operator within the State of New Mexico and in Good Standing with New Mexico's oil and gas regulatory agency.

Blugrass will pay $200,000.00 USD for start up costs to rework and repair the assets in question. Doral will not be responsible for their proportionate 40% share of these initial start up costs. Blugrass will extend to Doral "Preferential Rights to Purchase" Blugrass' 60% working interest in the Assets for a period of 24 months. Doral can purchase this 60% interest at a cost of either $2,000,000.00 USD or $40,000.00 USD per producing net barrel but no less than $2,000,000.00 USD assuming net production would be less than or equal to 49.9 BOEPD.

The closing of the transaction contemplated, is expected to occur on or before October 30, 2009 (the "Closing Date").

The Cave Pool Unit is located within the Artesia Vacuum Trend, more specifically, within the Grayburg Jackson Pool. The Artesia Vacuum Trend currently contains thirteen reservoirs with more than 1 MMBO cumulative production. Cumulative production from these 13 reservoirs was 796 MMBO as of 2000. Depths to the top of reservoirs range from 1290 to 4700 ft. This is a mature Area, especially within the productive San Andres Carbonates. Recent development of lower permeability Grayburg sandstones in the Grayburg Jackson reservoir during the mid-1990s has been successful to the point of reversing production decline and is a major focus of current and future development in the area.

Mr. Berscht, President of Blugrass Energy Inc., states, "We are excited to enter into this letter of intent with Doral Energy Corp and work closely with all of Doral's expertise to bring these wells into production on a timely basis."

About Blugrass:

Blugrass Energy Inc. is a development stage oil and gas development and exploration company based in the United States that is traded on the Over the Counter Bulletin Board under the Symbol BLUG. The goal of BLUG is to grow through internally generated and developed prospects, participation with industry partners in oil and gas exploration and in targeted joint ventures.

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Contact Information

  • Contact:
    Blugrass Energy Inc.
    Tony Collins
    1-877-511-0110