Solimar Energy Limited

Solimar Energy Limited

May 29, 2012 07:30 ET

Solimar and Neon Agree Revised Ownership at Paloma Amid Active Well Programs

MELBOURNE, AUSTRALIA--(Marketwire - May 29, 2012) - Solimar Energy Limited (ASX:SGY)(TSX VENTURE:SXS) is pleased to announce that it has come to an agreement with Neon Energy Limited (ASX:NEN) the Operator of the Paloma project in the San Joaquin Basin, California involving a revised project ownership structure which better matches each company's corporate objectives and provides Solimar with funding through the two new wells that are currently being drilled or in completion. Importantly for Solimar with this activity funded and the drilling program well advanced the Company will be able to focus its resources on its operated Kreyenhagen oil field project also in the San Joaquin Basin.


  • Solimar and project Operator Neon Energy have agreed to an adjustment of the Paloma project Farmin Agreement and ownership at the Paloma project.
  • Solimar will now have a 15% working interest in the leases currently being drilled and tested covering 1,405 gross acres while retaining a 25% working interest in the eastern area leases that represent a further 1,442 gross acres on the Paloma anticline.
  • As a result Solimar will be credited with a portion of past expenditure providing funding through the drilling and testing of the two new wells, the B&N 81B-36 (or Paloma-3) and the Paloma Deep-2.
  • Solimar will continue funding at its revised working interest level the ongoing production testing of the Paloma Deep-1 oil and gas discovery well.
  • The Paloma-3 well has reached total depth of 6,000 feet on budget and has been cased preparatory to testing a shallow hydrocarbon zone indicated on wireline and mud logs.
  • The Paloma Deep-2 well is drilling ahead at approximately 10,000 feet and is currently ahead of the drill schedule.
  • Operator Neon Energy is currently preparing a technical overview document for the Paloma project to be released in due course.

Solimar Energy Limited (ASX:SGY)(TSX VENTURE:SXS) has been earning up to a 25% interest in two lease areas covering 1,405 gross acres on the Paloma anticline pursuant to a Farmin Agreement with operator Neon Energy. This agreement required Solimar to pay a promoted share of the Paloma Deep-1 discovery well (total depth 13,320 feet) to increase its position in the leases from originally 12.5% to 25%. Solimar has met all its obligations on that discovery well to date but in considering the potential substantial size of the oil reservoirs identified and the future cost to appraise has agreed with Neon to modify the terms of the Farmin Agreement and limit its increased position to 15% with Neon retaining the remaining interest. In return Solimar, while maintaining a material interest in the project, is being credited with over expenditure it made on the earning well which will be applied to the drilling, completion and testing of two new wells. These are the Paloma-3 which has reached total depth of 6,000 feet and the Paloma Deep-2 which has a planned total depth of 13,300 feet. According to the budgets for those wells, Solimar will be effectively cost covered through the programs.

The revised arrangement is believed to represent a balanced transaction between risk and reward in keeping with each partner's respective objectives and capabilities. It is an outcome achieved wherein the partners have agreed to work closely together, contributing skills to achieve a successful appraisal of what each company considers is a project with exciting potential.

In addition to the acreage where Solimar will have 15% working interests the Company retains under a separate agreement its rights to a 25% working interests in a further 1,442 gross acres on the Paloma anticline. This acreage does not have any associated drilling commitments. Evaluation of this acreage and its potential exploitation is not as advanced as for the leases being drilled however the oil reservoirs identified within the Paloma Sandstone and the fractured shale reservoirs in the Monterey Formation in the Paloma Deep-1 well are mapped as being extensive throughout the area, thus preserving considerable upside for Solimar shareholders.

Of note is that oil major Occidental Petroleum, owner of acreage surrounding the project area on three sides, has permitted up to 8 well locations near the borders of the Paloma project.

A comprehensive update on all the drilling and testing operations is expected to be released by the Joint Venture in due course.

Commenting on the new ownership structure, Solimar CEO John Begg said;

"This is a pragmatic outcome that benefits both parties. Neon will retain a higher ownership in the leases that are currently being drilled and tested and Solimar will effectively be cost covered at its new level of 15% through two wells. Solimar will have a fully earned, material 15% interest in these leases which cover 1,405 gross acres while retaining its full 25% interest in the extension leases which make up another 1,442 gross acres on the Paloma anticline. The Company is now looking forward to not only the results of ongoing testing in the Paloma Deep-1 but a planned testing program for the recently drilled Paloma-3 and evaluating the results of the Paloma Deep-2 appraisal well which is currently drilling. The revised arrangement at Paloma is one of a number of transactions the Company expects to bring to fruition, leveraging off its large holdings in the projects in its San Joaquin Basin portfolio. These transactions will have the aim of bringing in industry sources of capital to fund the bulk of the Company's activities for the next 12 to 18 months. In the short term with the Paloma activity funded and the wells progressing efficiently Solimar will be able focus its resources on its mainly 100% owned and operated Kreyenhagen project where the Company will be production testing an independently assessed, unrisked oil resource containing oil in place of up to 79 million barrels*.


John Begg, Chief Executive Officer

Solimar Energy Limited

*Resource Assessment of Certain P&NG Holdings in the Kreyenhagen Area for Solimar Energy Limited (as of 31 October, 2011) - By Sproule Unconventional Limited. This report was highlighted in a release to the ASX and Canada on 18 November, 2011 and published in full on 22 November, 2011.
*Audit of Solimar Energy TSX-V listing compliance Technical report, California oil and Gas Projects, as of 30 June, 2011 - by Sproule Unconventional Limited. This report was released to the ASX and Canada on 22 November, 2011.

Copies of these reports are on Solimar Energy's website under "Investor Centre" and "Resource Reports".

ABN 42 112 256 649

Neither 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.

Contact Information