Baron Oil has terminated a farm-in agreement (FIA) for a Peru block estimated to have more than 2billion barrels of reserves.
The AIM listed firm has been in several months of discussion and negotiations over the deal with with Union Oil & Gas Group (UOGG)
Baron has now taken back its full 50% working interest share in Peru Block Z-34 and is seeking a new partner.
The move will incur $1.6million net loss on Baron’s accounts.
In a statement the board said it would “serve no useful purpose” to pursue legal action to wind up UOGG in the British Virgin Islands, since the corporate structure is such that there are no financial assets held in the company.
The statement added: “In addition, to enter into such action would severely prejudice ongoing farm-out discussions with third parties and also negatively impact the status of the Contract Licence for Block Z-34.
“In view of the short time frame remaining on the Contract, it was deemed essential that a new working relationship be established quickly with UOGG that would enable Baron to play a full part in both the ongoing operations and the farm-out discussions.
“The failure of UOGG to meet its financial obligations following the approval of the Public Deed in February 2017 meant that Completion did not take place under the terms of the FIA and a Termination Agreement to the FIA has now been negotiated and agreed between Baron and UOGG with effect from September 8th 2017.”
Bill Colvin, chairman of Baron said: “UOGG’s failure to abide by the terms of the FIA was extremely disappointing, placing Baron in a very difficult position, and the Termination Agreement is definitely not the best financial outcome for Baron.
“However your board has finally concluded, with local legal advice, that to take any other route would be likely to destroy all remaining value in Block Z-34 and we would still be highly unlikely to recover any funds that would have been due to the Company under the FIA.”
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