Pursuing and developing exploration project opportunities in Latin America

Corporate Business

Concession Obligations

The Concession Agreement establishes the following minimum activities to be performed by the Company within the time table established in the Concession Agreement during the four year exploration phase (the “Concession Obligations”):

  • acquisition of digital copies of all relevant technical data;

  • reprocessing and interpretation of all the existing 2D information, and of the electrical profiles of existing exploratory wells;

  • preparation and approval of the environmental impact study required by Law No. 294/93;

  • acquisition, processing and interpretation (in 2D and/or 3D) of at least 100 kilometers of new seismic lines (that may be done before or after exploratory drilling); and

  • drilling of at least 15,000 meters of exploratory wells, including testing samples, evaluation and production well testing as applicable or required in accordance with international standards.


In conducting the exploration activities listed above, the concession holder must make a minimum investment of $16,000,000. Non-compliance with these requirements will constitute a cause for rescission of the Pirity Concession in accordance with Article 62 of the Paraguayan Law No. 779/95 (the “Hydrocarbons Law”).

In the event the Company requests a two-year extension of the exploration phase, an additional well must be drilled in each of such years, to a depth of not less than 5,000 meters. The Concession Agreement establishes the following timetable for the principal activities of the exploration phase: (i) the environmental impact study must be conducted during the first year; (ii) exploration work (the acquisition of 100km of seismic data) must commence within the first year and (iii) at least 15,000 meters of exploratory wells must be completed during the four-year period. The Concession Obligations are minimum obligations necessary to maintain the Pirity Concession.

The Company believes that developing the Pirity Concession and meeting the Concession Obligations is achievable most prudently through a flexible work plan and, therefore, the Company has prepared a menu of project options, including costs, that may be implemented in the most favorable order provided the then-current operating environment. Variables such as large fluctuations in seismic, drilling and other oil services costs and equipment availability as well as the scope of the work undertaken will drive the order of operations and establish the total cost.

Acquisition of Digital Copies

The Company has completed the required acquisition of digital copies of all relevant technical data for the Pirity Concession.

Reprocessing and Interpretation

Through Schlumberger and their various divisions, the Company and President Energy have completed the required reprocessing and interpretation of all the existing 2D information and of the electrical profiles of the existing exploratory wells for the Pirity Concession. In addition, Schlumberger and their divisions completed geological and geophysical studies in the Pirity Concession using extensive 2D seismic data, existing well data and regional trend information. Extensive evaluation of the Pirity Concession’s prospects and leads including state-of-the-art basin analysis and migration studies were completed as well.

Environmental Impact Study

To maintain good standing under the Pirity Concession, the Hydrocarbons Law requires the Company to complete an environmental impact study. In addition, the Company must file quarterly reports with MOPC containing all technical and economic information obtained in the performance of the Concession Agreement, and, in January of each year, an annual report regarding the work performed during the previous year, which includes maps, photographs and statistics. The environmental impact study was completed for the Pirity Concession and the environmental permit was awarded on June 2, 2008 by Paraguay’s Environmental Authority (Secretaría del Medio Ambiente). The Company has timely filed all quarterly and annual reports since the effectiveness of the Pirity Concession.

Commencing Exploration Work

Under Article 27 of the Hydrocarbons Law, exploration work in a concession must commence within the first year of the four-year exploration phase. The exploration phase for the Pirity Concession began initially on May 13, 2008 with the enactment of the Concession Agreement into Law 3,479/08. In 2012, the terms of the Concession Agreement were amended as a result of a settlement agreement with the MOPC and the issuance of Decree 9,845/12 by the Executive Branch of Paraguay, to reset the four-year exploration period to begin as of September 12, 2012. President Energy and the Company anticipate fulfilling the exploration elements of the Concession Obligations under the terms of the Pirity Farm-Out.

Under Article 27 of Hydrocarbons Law, a concessionaire must start the exploration work within a year following the date of the decree granting the concession for it to qualify as having “commenced exploration”. Otherwise, the concession will lapse. The Company has been advised that acquiring new seismic data on the field within the first year of exploration constitutes commencing exploration work. Since the new exploration period began in September 12, 2012, the Company has completed approximately 460 km of 2D seismic and 791 Km of 3D seismic, well above the 100 km required per the Concession Agreement. President Energy and the Company anticipate fulfilling the remaining requirements of the Concession Obligations under the terms of the Pirity Farm-Out.

The Pirity Farm-Out

In 2012, the terms of the Pirity Concession were amended so that the exploration period was extended to September 2016. On September 11, 2012, Petro-Victory, LLC and PHSRL entered into a farm-out agreement (the “Pirity Farm-Out”) with President Energy, pursuant to which President Energy would act as the operator and was granted the right to earn up to a 59 percent working interest in the Pirity Concession on an incremental basis, to a maximum expenditure of $50 million. In connection therewith, President Energy Paraguay S.A. and PHSRL entered into the JOA. The JOA defines the rights and obligations of each party and generally governs the operations, authority, work programs, funding and insurance related to the Pirity Concession. To date, President Energy has earned the full 59 percent working interest in the Pirity Concession through making payments that included several expenditures, such as: Back Costs Incurred by the Company regarding the Pirity Concession, Direct Overhead Costs, Line Clearing, Civil Works, 2D and 3D Seismic Acquisition, Expenditures Related to the Contract of the Schlumberger Integrated Project Management Team, Contingence Funds for the First Well (Jacaranda), Casing, Tubing, Wellhead & BOP and Drilling Rig.

For details related to President Energy’s Expenditures and Operations in Paraguay, see the Prospectus Document.

Working Interests and Royalties Regarding the Pirity Concession

The Company, through its wholly owned Paraguayan subsidiary, PHSRL, has a 36 percent working interest, President Energy has a 59 percent working interest and a third party, LCH, owns a 5 percent working interest. All of LCH’s costs are carried by the Company through the exploration work program initial phase (carry is herein referred to the minimum work commitment program, including 100 Km of 2D seismic and the 15,000 meters of exploration wells) of the Pirity Concession. In addition to these working interests, the PHSRL Founders hold a 5 percent gross overriding royalty on all production from the Pirity Concession pursuant to the GORA. On June 2014, President Energy reported the acquisition of “LCH”, a Paraguayan company holding 5% working interest in the Pirity Concession, and consequently, unless it were proved otherwise, President Energy currently holds 64% working interest in the Pirity Concession.

President Energy

President Energy is an international oil and gas exploration and production company listed on the AIM market of the London Stock Exchange. Under the Pirity Farm-Out, President Energy agreed to act as the operator under the Pirity Concession and was granted the right to earn up to a 59 percent working interest in the Pirity Concession on an incremental basis.

On February 6, 2014, President Energy raised $50.8 million to assist with the development of its assets in Paraguay. The IFC, a member of the World Bank group, has invested $24.04 million in President Energy to date (and holds approximately 13.5 percent of President Energy’s share capital), approximately $9 million of which was invested in President Energy’s February 6, 2014 raise.

The IFC, a member of the World Bank group, is the largest global development institution focused exclusively on the private sector. The IFC assists developing countries to achieve sustainable growth by financing investment for companies operating in emerging markets, providing advisory services to business and governments, and mobilising capital in the international financial markets.

During 2014, President Energy made investment in excess of U.S. fifty (50) million dollars in the Pirity Block and consequently earned its 59% working interest in the Pirity Concession. Furthermore, on June 2014, President Energy reported the acquisition of “LCH”, a Paraguayan company holding 5% working interest in the Pirity Concession, and consequently, unless it were proved otherwise, President Energy currently holds 64% working interest in the Pirity Concession.