CALGARY, Feb. 8 /CNW/ - Solana Resources Limited (TSX-V: SOR; AIM: SORL) is pleased to announce the consolidation of its Colombian asset portfolio through the disposal of 100% of its rights and obligations under an Exploration Participation Agreement (the "EPA") to Ramshorn International Limited ("Ramshorn") signed February 8, 2007 but having effect from December 1, 2006. With the agreement, Ramshorn will reacquire 100% of the EPA assets which includes the five Colombian oil and gas exploration prospects, Guayabillas, Puma, Guariquies, Alamo and Zeus.
Consolidation Drivers
Pursuant to a recent management initiated strategic review of Solana's wide ranging asset portfolio, the Board of Directors reconfirmed its commitment to Colombia and identified a number of high value assets to be the strategic focus of the business. These higher value assets represent the best risk/reward ratio and are generally characterized as having:
- Solana as the operator - Solana at a high working interest - Solana not promoted - Attractive fiscal terms
Integral to this strategy is moving non-core assets out of Solana's portfolio, allowing capital and human resources to be focussed on these higher value assets - located in the Llanos, Putumayo and Catatumbo basins.
Consolidation Impacts
Financial - This disposition results in changes to entitlements under the EPA but is otherwise for zero consideration. However, Solana will receive US $3.2 million for the outstanding balance of an escrow account established to guarantee its share of the Guariquies-1 long term test and Guariquies-3 drilling costs. An additional US$0.2 million is expected in post closing adjustments relating to EPA capital and revenue adjustments to December 1, 2006. Solana will also receive 100% of its share of Puma-1 completion costs (estimated at US$1.4 million dollars) from 50% of Ramshorn's operating profits deriving from any potential Puma production. Solana is entirely relieved of its obligation to fund 48% of the Zeus-1 exploration well where Solana's remaining exposure was estimated at US$10.5 million.
Reserves & Resources - No reserves have been allocated to the EPA assets since the commencement of operations in December 2004. Guayabillas and Alamo have been drilled and abandoned, Puma and Guariquies are being tested and Zeus remains to be drilled.
Work Program - Solana will participate in six higher value wells and acquire 320 km(2) of 3D seismic over the next six months - completely with existing capital resources.
Financial Statements - Solana follows the full cost accounting method for its capital expenditures and held a book value of US$25 million for the disposed assets. Pursuant to Canadian GAAP rules Solana will most likely incur an impairment adjustment of close to this full amount. No profits have ever been recorded in respect of the divested assets.
The Board is confident that this reassessment of the Company's portfolio will both relieve a number of stringent financial obligations and focus attention on higher potential value exploration areas.
Forward Looking Statements
Certain information regarding the Company, including management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with oil and gas exploration, production, marketing and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources; as a consequence, actual results may differ materially from those anticipated. The Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contemplated by the forward-looking statements.
Solana Resources Limited
Solana (www.solanaresources.com) is an international resource company engaged in the acquisition, exploration, development and production of oil and natural gas. The Company's properties are located in Colombia, South America and are held through its wholly owned subsidiary, Solana Petroleum Exploration (Colombia) Limited. The Company is headquartered in Calgary, Alberta, Canada.
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