Breaking News: Lopongo, Canistracci Oil reach oil deal

After weeks of intense and secretive negotiation in Geneva and Locarno, Switzerland, the government of Lopongo and Canistracci Oil reached an agreement on a plan to explore and develop oil reserves and fields in the Western part of the country, "Qui Lopongo" learned from exclusive sources privy to the deal. An official announcement is expected tomorrow before the opening of the European stock markets. Neither the company nor the local authorities intend to release the details of the agreement, but our sources provided a full account of agreement:

• Canistracci Oil will pay upfront an exploration fee of $300 million, una tantum, for the right to conduct oil surveys in four designated area in the department of Port Durame.


• Within one year from the beginning of the operation, Canistracci will report the result of the survey to the government of Lopongo.


• Canistracci retains the right to start drilling and extraction in the designated areas.


• Oil revenues will be divided according to a 20/20 rule: Lopongo will receive royalties of $20 per barrel plus 20% of the difference between market price (based Brent spot price) and $20.
  In case market price will rise above $100, Canistracci will pay a royalty of 45% for the difference between market price and $100.


• Canistracci Oil will establish an administrative office in Banda, and operative offices in Port Durame and in the four designated exploration areas.


• Canistracci Oil will invest in the pipeline infrastructure between the extraction areas and the terminal of Port Durame; Lopongo will build and own the facilities of the oil terminal in the city, and will provide adequate port facilities for the unloading operation of Canistracci Oil equipment.


• The government of Lopongo will provide security for the personnel and equipment in transit between Port Durame and the designated areas; Canistracci Oil is authorized to provide its own security services for the four designated areas, the port terminal, and the pipeline construction site.


• The agreement is exclusively between Canistracci Oil and the government of Lopongo. The authority of the government will supersede any administrative burden required by the Department of Port Durame. Canistracci Oil has no obligation in respect of the Deaprtment of Port Durame.

The future of Port Durame?
The agreement provides a broad framework to establish and operate oil operation in Lopongo, and it is expected to have a major impact on the economy of the country. The exploration fee of $300 million will create, for the first time in several years, a budget surplus for year 2009 -- for 2008, the government is expeced to run a deficit of about $260 million. With oil reserves that preliminary estimates suggest in the order of 1 billion barrel, and a potential production capacity of 100,000 barrels per day, Lopongo fields might generate revenues of $1.8 billion, and about $900 million of additional state revenues that will more than double the current level of $770 million revenues expected in 2008.

The agreement, reached after protracted negotiating sessions and a frustrating collapse in oil prices (at $50 today in London) will also have important political repercussion, insofar the government of Banda has achieved full control of oil revenues with the total exclusion of the local authorities in Port Durame. Reactions by general Mobuto Labomba, governor of Port Durame, are expected soon.