New Stratus Energy Announces Acquisition of Partner Interest in Blocks 16 & 67

New Stratus Energy release

Calgary, Alberta, September 8, 2022 – New Stratus Energy Inc. (TSX.V - NSE) (“New Stratus” or the “Corporation”) is pleased to announce it has entered into an asset purchase agreement (the “Agreement”) with one of the Corporation’s working interest partners (the “Vendor”) in Blocks 16 and 67 in Ecuador (the “Blocks”) to acquire the Vendor’s entire working interest in the Blocks. Pursuant to the Agreement, the Corporation will acquire an additional undivided 31% working interest (the “Acquired Interest”) in the service contracts (the “Service Contracts”) for the Blocks for total consideration of approximately US$1.2 million cash, subject to adjustment (the “Transaction”). Completion of the Transaction is subject to prior regulatory approvals, including authorization by the Ecuadorian Ministry of Energy and Mines and antitrust authorities. The Transaction, upon statutory sanctioning, will consolidate the Corporation’s working interest in the Blocks, increasing from 35% to 66%. The Transaction will also substantially grow New Stratus’ current production and cash flow while maintaining the Corporation’s significant financial flexibility.

Transaction Highlights

The Acquired Interest has the following characteristics:

 Gross production as of September 1, 2022 was approximately 4,700 barrels of oil

per day (bopd).1

 Proved developed producing reserves: 1.023 million barrels of oil.1

(1) See “Reserves Advisory”.

Blocks 16 and 67

Upon completion of the Transaction, the Corporation will hold a 66% operated working interest in the Service Contracts for the Blocks, which are located in the Orellana Province in the prolific Oriente Basin in Ecuador. The Blocks have a long history of production, with a total of 262 wells drilled, and excellent seismic coverage. This has contributed to substantial knowledge of the area’s characteristics, properties, distribution of reservoirs, production mechanisms, and additional exploration opportunities.

The Blocks are comprised of 9 fields, with total working interest production as at September 2, 2022 of approximately 15,159 bopd at an average gravity of 15.5° API. 

New Stratus gross production is expected to be approximately 10,000 bopd following completion of the Transaction.

Existing infrastructure includes two oil and water processing centers with a capacity of 75,000 bopd and 900,000 barrels of water per day, with all the water production being reinjected into 30 wells. Additional area infrastructure includes electricity generation plants and a topping plant which produces diesel used to power operations.

The oil produced in the fields is moved by a 16-inch pipeline to Lago Agrio, where it is loaded into the Oleoducto de Crudos Pesados Ecuador S.A. pipeline and transported to a port on the Pacific Ocean.

Tariffs are governed by the Service Contracts and a portion of such tariffs is indexed to US CPI/PPI. While the existing Service Contracts expire in December 2022, significant production potential remains in the Blocks.

New Stratus continues to negotiate with the Government of Ecuador, specifically the Ministry of Energy and Mines on the extension of the rights to the Blocks through a production sharing contract where the Corporation has committed to a capital expenditure program in excess of C$250 million.

The Blocks include commitments to minimize the environmental impact of operations, to maintain high standards of safety, and to undertake long-term investments for the benefit of local communities.

Transaction Terms

Pursuant to the terms of the Agreement, the total consideration consists of a cash payment of approximately US$1.2 million (C$1.4 million) subject to adjustment for working capital and for carryforward payments under the Service Contracts arising after the closing date and before December 31, 2022. The parties estimate the adjustment for the carryforward payment will be approximately US$2 million. The purchase price reflects both remaining cashflow under the Service Contracts and reversion costs for the Service Contracts, estimated at approximately US$14 million, that are scheduled to end on December 31, 2022. The Transaction is subject to customary closing conditions and is expected to close on or before November 30, 2022.