President Energy today announced the signing of the agreement for the farm-out of its Pirity Concession, Paraguay ("Pirity").

Highlights

• Agreement signed with a substantial Northern Hemisphere state-owned energy company, to farm in for a 50% participating interest in the Pirity Concession, Paraguay
• In return, the Farminee will pay 60% of the costs of an exploration well currently scheduled to commence during H1 2022 and will also pay President US$4m in consideration of the Company agreeing to enter into its performance obligations under the Agreement
• Agreement subject only to regulatory approval and prolongation of the licence for a defined period
• The exploration well will target the Delray complex of prospects, estimated by the Company to contain in aggregate over 260 MMbo of Pmean Unrisked Resources
• Costs of the well are estimated at between US$10-15 million with an estimated chance of success of 30%
• President will continue as the operator of Pirity

Background to the Farminee

The Farminee is a substantial state-owned energy and petrochemicals company from the Northern Hemisphere whose identity shall remain confidential until the farm-in is completed. For the purpose of the farm-in to Pirity, the Farminee has formed a special purpose vehicle.

Background to the Pirity Concession

The Pirity Concession, in which President holds 100% and operates, is an exploration block in the Chaco area of Paraguay.

President acquired its initial interest in Pirity in 2012 and conducted an extensive exploration campaign in 2013/14 that commenced with the acquisition of over 1,000 km of 2D seismic and 850 square km of 3D seismic and culminated in the drilling of two exploration wells. Whilst the exploration wells identified a petroleum system in the north of the block with significant shows of hydrocarbons whilst drilling, no commercial production was achieved.

It subsequently became clear from these results and further detailed analysis of data that the most prospective exploration area in Paraguay was the Delray complex of prospects containing what the Company estimates are over 260 MMbo of Pmean Unrisked Resources in place.

It is this complex that bears the nearest similarity to the prolific long life Palmar Largo field complex 100 km across the border in Argentina. It has been determined that, of the usual exploration factors to be taken into account, there is good reservoir rock present in Delray capable of prolific production if charged and an excellent four way closure with seal, with the main exploration risk being migration from the hydrocarbon source. President estimates a 30% chance of success for the exploration well.

Since the previous exploration campaign, President has identified at least one proven analogue to demonstrate that hydrocarbons have migrated some distance from the source rock being the same source which successfully charged the reservoir in Palmar Largo.

The Farm-in terms and conditions

The agreement entered into between President and the Farminee contains the following key terms:

1. The Farminee will farm in for 50% of Pirity
2. In consideration therefore the Farminee will bear 60% of the costs of the first well up to US$15.5 million and thereafter (if applicable) each of the Company and the Farminee will bear 50% of the costs both of that well and any future costs relating to other work which may be agreed to be undertaken
3. The Farminee will also pay President on completion of the agreement the sum of US$4m in consideration of the Company agreeing to enter into its performance obligations under the Agreement
4. The Agreement is conditional on approval by the relevant Paraguayan regulatory authorities to the transfer of interests to the Farminee and prolongation of the licence term for a defined period of time taking into account inter alia the pandemic and the concomitant restrictions
5. Whilst there is a 6-month long stop date by which the said conditions have to be fulfilled, the Company is nevertheless confident that these conditions will be satisfied within the time allocated
6. The parties have agreed a form of Joint Operating Agreement to take effect on completion under which inter alia President will continue to be the operator of Pirity

Commentary on farm-in by the Farminee

The agreements signed today are the culmination of 20 months of negotiations which continued right through the pandemic. In the context of the prevailing circumstances and facts, they are considered by President to be fair and proportionate, managing risks whilst bringing in a substantial respected international partner from a country with established diplomatic relations with Paraguay.

The first well location has been agreed by the parties which will allow the necessary preparatory work to commence as soon as possible after completion. Taking into account the pandemic, the raft of preliminary work that needs to be performed, weather factors as well as issues arising from the pandemic, it is currently projected that drilling will commence in Delray during H1 2022. Further details on timing will be announced as and when it is available.

The total costs of the first well with a target depth of approximately 3,750 metres are currently estimated by President to be between US$10-15 million. President's share of the well will be funded out of its own resources where applicable, with, for the avoidance of doubt, no equity issuance contemplated in this regard. In the event of success, President has no doubt that there will be many funding solutions for project development.

Next steps

President and the Farminee will now pursue the necessary applications to satisfy the above conditions. It is considered that this may take time taking into account once again the prevailing pandemic conditions in Paraguay.

Upon satisfaction of the conditions, the agreements will be completed. Thereafter the parties will work together as envisaged under the agreements.

The Company will keep the market informed as to all material developments and again urges patience during this time.

Peter Levine, Chairman, commented:
"I am very pleased that President is entering into a partnership with this substantial state-owned energy company whose name will remain confidential until the conditions attaching to the farm-out agreement are completed.

"Having in the course of negotiations visited the Farminee in its home country, I have been impressed by the professionalism of its workforce, the country and its people. I am sure that the Farminee will be an excellent and supportive partner as together we embark with enthusiasm and the appropriate level of optimism on an unfinished journey President started but never completed in the quest to create history and be the first to find oil in Paraguay.

"President itself is a transformed company since our previous Paraguayan drilling campaign. With lessons learnt, we have mobilised our significant in depth management, operational and technical expertise, leveraging on our extensive production and exploration assets in neighbouring Argentina combined with our financial strength to maximise the potential of success for the upcoming drilling in 2022.

"With the recent robust oil prices and demand increases, the timing is perfect especially when taking into account in a success case the end market opportunities provided in a country that currently imports all its oil in refined form by barge all the way from the River Plate. We have in this regard a significant joker in our pack of cards through the possibilities which will be no doubt available through our second largest shareholder Trafigura, one of the World's leading commodity traders whose associated company in Paraguay, Puma, is an important importer of fuel into the Country and has there an extensive and significant network of retail filling stations.

"Finally, I would like to extend my thanks to the Farminee for their friendship and hard work to get us to this point. In particular, I would also like to extend my personal gratitude to the President, Government and regulatory authorities of Paraguay for their help and understanding in our work. It is a country and people I hold dear to my heart. Together with the Farminee we will do what we can within our powers to make this well as successful as possible.

KeyFacts Energy: President Energy Paraguay country profile