The Government of Belize has given Northern Spirit Resources Inc., a Canadian company, approval to explore for oil across ¼-million acres of The Jewel, and the company, whose financials reported it being “in the red” for 2008 and 2009, is now trying to source close to BZ$1 million to undertake the new venture.
Back in February, Prime Minister Dean Barrow, Minister of Finance, had announced that the Production Sharing Agreements (PSA’s) would give the Government of Belize 10% royalty as opposed to the 7.5% under old contracts, as well as 15% of production sharing revenues on the first 5,000 barrels of oil produced daily.
However, a release published by the company indicates that this production sharing rate applies only for the first PSA. The second PSA, which is near the country’s first producing field in Spanish Lookout, has softer terms: GOB gets only 10% of production sharing revenues on the first 10,000 barrels produced daily. It is only after the daily production jumps 10,000 barrels that government collects the 15% on the second contract.
(This is still better than the rate on the contract for Belize Natural Energy (BNE), which pays production sharing of only 1.5%, but it is not as much as the government had said.)
The Canadian company beat out Sai Trading Company (a group of local Hindus), Sadhna Petroleum (from Trinidad), and RSM Production Corporation, which had to relinquish a portion of the area included in one of the PSA’s because it did not find oil within the required time frame. It also acquired areas that had to be relinquished by BNE for the same reason.
The first PSA for Northern Spirit, according to its release posted on Marketwire on the Internet, is for 16 blocks of various sizes in 3 contiguous areas. The area spans 128,000 acres in the northwest corner of Belize, part of which is on the Belize-Guatemala border and part on the Belize-Mexico border. The second is for 12 blocks of various sizes in 2 contiguous areas, spanning 100,324 acres in north central and mid-western Belize, to the west and south of the Spanish Lookout oil field.
As we reported in February after Prime Minister Barrow had announced the new PSAs, concerns were raised to our newspaper that the company that had been granted the oil contracts had been “in the red” for the reporting periods of 2008 and 2009.
Director of Petroleum and Geology, Andre Cho, told us when we shared the concerns that prospecting companies would usually use their PSA’s (contracts) to raise capital to meet their exploration requirements.
At the time when the financing concerns were ventilated, the PSA’s had not yet been signed. However, on Friday, the company announced that the two PSA’s had been concluded. The company has gone to the market to raise funds for the oil exploration project.
In an announcement posted on Marketwire on Monday, April 19, 2010, the company’s CEO, Richard F. Boyd, is proposing a non-brokered private placement offering “of 2,000,000 common shares at $0.25 each for gross proceeds of $500,000 [CAD].”
The announcement stipulates that, “Proceeds will be used to fund the commencement of work in relation to the recently announced Belize acquisition of two Production Sharing Agreements.”
Here are the details published on the Northern Spirit PSA:
“PSA #1 consists of 16 blocks of various sizes, in 3 contiguous areas, totaling approximately 128,000 acres located in the northwest corner of Belize, part of which is on the Belize/Guatemala border and part on the Belize/Mexico border. The terms include an initial term of 2 years with 3 successive renewals (at the Corporation’s option) of 2 years each, with a relinquishment of 25% of the original contract area at the end of each 2-year period. The work requirements for each year of the initial term and renewals are (all references are to US currency): $80,000 and $70,000 (to conduct mapping and geochemical surveys); $400,000 and $2,300,000 (to acquire, process and interpret 30 kms of 2D seismic and drill the first exploration well); $500,000 and $2,300,000 (to acquire, process and interpret 12 kms (2) of 3D seismic and drill a second exploration well); $500,000 and $2,600,000 (to acquire, process and interpret 12 kms (2) of 3D seismic and drill a third exploration well). With the Government’s consent, expenditures and work performed may be carried forward to successive years. In the event of a discovery, the Corporation will have earned the formations so identified and the production term is 25 years. On such production there is a royalty of 10% on petroleum and 7½% on gas production; after deduction of royalties and the recovery of the Corporation’s operations expenditures, production will be split to the Corporation and the Government of Belize based on daily average production as follows: on the first 5,000 barrels of 85%-15%; next 5,000 barrels 80%-20%; next 10,000 barrels 75%-25%; next 10,000 barrels 70%-30%; thereafter 60%-40%.
“PSA #2 consists of 12 blocks of various sizes, in 2 contiguous areas, totaling approximately 100,324 acres located in north central and mid western Belize and generally to the west and south of the Spanish Lookout oil discovery. The terms of PSA #2 are similar to PSA #1 as described above except the yearly work requirements are: $15,000 and $20,000 for the initial 2-year-term (to collect data and conduct geological and geographical studies); $135,000 and $1,000,000 (to acquire and process 10 kms of 2D seismic and drill the first exploration well if warranted); $420,000 and $1,000,000 (to acquire, process interpret 10 kms (2) of 3D seismic and drill a second well if warranted) and $420,000 and $1,000,000 (to acquire, process and interpret 10 kms (2) of 3D seismic and drill the third exploration well if warranted); the production split based on daily average production is as follows: first 10,000 barrels 90%-10%; next 10,000 barrels 85%-15%; next 10,000 barrels 80%-20%; next 10,000 barrels 75%-25% and thereafter 70%-30%.
“Subject to regulatory approval and final documentation, the Corporation will pay a finders fee to arm’s length parties who were instrumental in introducing the Belize opportunity to the Corporation. The Corporation will issue 400,000 common shares and a further 1.6 million common shares when production reaches 750 barrels of oil equivalent (“boepd”) and will issue a 5% gross overriding royalty (“GORR”); the GORR may be purchased by the Corporation, at its option, within one year by the delivery of 400,000 common shares at the time of exercise of the purchase and a further 1.6 million common shares in the event that production reaches 750 boepd. Reference to barrels of oil equivalent (‘BOE’) or boepd may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.”