LONDON (ShareCast) - (Sharecast News) - Africa-focussed oil and gas company Tower Resources has executed binding heads of terms over a farm-out to OilLR of a 24.5% working interest in its Thali production sharing contract in Cameroon, it announced on Monday.
The AIM-traded firm said the heads of terms were through its wholly-owned subsidiary, Tower Resources Cameroon.

It said the key economic elements of the transaction were that the farm-out covered $7.5m towards the cost of the NJOM-3 well that Tower was planning to drill on the Thali block.

OilLR would receive a 24.5% working interest in the production sharing contract (PSC), subject to an overriding royalty of 10% for Tower on the contractor share of production under the contract.

The well cost was expected to be between $15m and $16m, of which around $3m had already been spent.

Each party would recover back costs actually funded and recoverable under the PSC, pari passu, the board confirmed.

Tower said it would effectively contribute its non-recoverable costs in consideration of the 10% overriding royalty on the contractor share of production, and explained that costs of more than $15m, and future costs, would be funded pro-rata with respect to working interests.

Tower Resources Cameroon would remain operator of the Thali PSC under an industry-standard joint operating agreement, and in the event the formal farm-in agreement and approvals could not be completed "in good time", then OilLR would instead receive an appropriate share of the operator's share capital and Tower's intercompany loans to the operator, Tower said.

The heads of terms were binding even though further documentation was required to effect the transaction, and the parties' intention was to complete the transaction by 15 April, subject to the usual confirmatory due diligence and OilLR having provided payments to Tower and into escrow of $7.5m in total at completion, and Tower having demonstrated that it had funding for the balance of the $15m.

In particular, the heads of terms would terminate automatically on 29 March in the event that Tower had not received proof of funding in a form acceptable to it from OilLR by that date.

Tower said it was still in discussion with "several other parties" regarding the farm-out of up to a further 24.5% interest in the Thali PSC, on similar terms.

"We are delighted to have the opportunity to work with Greg Lee and Art Malone of OilLR on this project in addition to securing this funding for the well, and we intend to have the balance of the funding in place by the time this transaction completes," said chairman Jeremy Asher.

"This agreement is also consistent with our intention to commence drilling NJOM-3 in June, subject to finalisation of the rig schedule and the service companies' schedules.

"We expect this well to transform the company by converting current contingent resources into proven reserves, so putting us firmly on the path to production in 2021."

At 1430 GMT, shares in Tower Resources were up 6.35% at 0.45p.

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