Petrolatina Energy: Shell E&P Columbia To Buy 85% Interest In VMM-28

Petrolatina Energy PLC (PELE.LN), an independent oil and gas exploration, development and production company focused on Latin America, said Friday it has entered into a farm-out agreement with Shell E&P Colombia, effective July 12 whereby Shell E&P Colombia will buy an 85% participating interest in the Company's VMM-28 Exploration and Production contract.

MAIN FACTS:

-VMM-28 block is currently wholly owned and operated by Petroleos del Norte S.A., or PDN, PetroLatina's Colombian operating subsidiary.

-Shell E&P Colombia has agreed to pay a fee of $15 million in cash to PetroLatina, of which $3 million is payable on execution of the agreement and the balance on receipt of the requisite Agencia Nacional de Hidrocarburos, or ANH approval.

-Shell E&P Colombia will be appointed as operator of the contract and will take responsibility for the work program.

-In the event that ANH approval isn't forthcoming by Sep. 30, Shell E&P Colombia has the right to terminate the agreement and require any payments made by it to PetroLatina to be repaid.

-Under the agreement, PetroLatina has granted Shell E&P Colombia a six year period of operational exclusivity; during this period, Shell E&P Colombia will pay for 100% of the costs, expenses and liabilities associated with the work program and shall be entitled to all rights in relation to the block.

-Shell E&P Colombia will make available to PetroLatina all data acquired by it in relation to the contract area and ensure that the license area remains in good standing and will comply with all applicable laws, regulations and orders of Colombia.

-Under the agreement, Shell E&P Colombia will obtain an 85% participating interest in the block; PDN will retain a 15% legal interest with an option to participate in the block upon expiration of the exclusivity period.

-PetroLatina shall pay its share of the costs, expenses and liabilities associated with the block and shall pay Shell E&P Colombia for its share of Shell E&P Colombia's total sunk costs incurred to such date, out of PetroLatina's share of production within the block.

-Operations on the VMM-28 block would thereafter be governed by a joint operating agreement.

-In the event that Shell E&P Colombia decides to withdraw from the farm-out agreement, the Company has the option to request that Shell E&P Colombia transfers its prevailing interest in the block back to PetroLatina.

-Following the receipt of ANH approval, Company intends to use the proceeds from the farm-out agreement to assist with the part funding of its planned ongoing drilling program and development commitments in respect of the remainder of its Colombian asset portfolio and for general working capital purposes.

-Petrolatina Energy shares at 0805 GMT up 2 pence, or 6.4%, at 27 pence valuing the company at GBP33.14 million.

-By Ian Walker, Dow Jones Newswires; 44-20-7842-9296; [e-mail]