TN PETRÓLEO

Canadian oil company PetroFalcon`s (TSX: PFC) wholly owned Venezuelan subsidiary Vinccler Oil and Gas has signed a farm-in agreement with Repsol YPF (NYSE: REP) for the Cardon IV block in the Gulf of Venezuela.

Vinccler agreed to acquire a 25% working interest in the offshore natural gas block from Repsol YPF. The Spanish company will hold onto a 25% interest and Italian oil company Eni (NYSE: E) the remaining 50% stake.

Venezuelan state oil company PDVSA has the right to up to a 35% interest in the block when commerciality is declared, PetroFalcon said in a statement.

The transaction is subject to the approval of Eni and Venezuela`s oil and energy ministry (Menpet) in addition to the negotiation and signing of a binding sale and purchase agreement.

Eni is expected to approve the deal quickly and Menpet could give the deal the nod later in the year, according to a BNamericas survey of industry sources.

PetroFalcon could not comment on the value of the deal, but industry sources estimated that the 2009 one-well commitment on the Cardon IV block would cost US$30mm for the partners.

Subject to government approval, PetroFalcon also is acquiring a 30% interest of the offshore natural gas license for the Cardon III block, where Chevron (NYSE: CVX) is operator and majority partner.

Repsol and Eni won the Cardon IV block with a high bid of US$34mn in the second phase of the Rafael Urdaneta project in 2005. The 924km2 block is in relatively shallow waters, 30km west of the Paraguana refinery complex in Venezuela.

OPERATIONAL UPDATE

The acquisition of 700km2 of 3D seismic data over the Cardon IV block wrapped up in February 2007, according to the statement.

The data now is being interpreted and a drilling decision for an exploration well is due in mid-2008 with a likely spud date in early 2009.

A jackup rig is being secured with a multi-operator group from adjoining blocks in the Gulf of Venezuela. If successful, first commercial production of natural gas is expected in 2011.

"The Cardon IV block is strategically located next to our Cardon III offshore acreage with Chevron," PetroFalcon president Bill Gumma said in the statement.

"Participating in Cardon IV will allow us to access the Robalo structure that drew our interest in the nearby Castilletes NE II block in 2005," he continued.

Exploration on the Cardon III block is exactly the same operation as Cardon IV in terms of timing and costs, according to industry analysts.

The one-well commitment in 2009 also is estimated to cost US$30mm gross for the partners.

"The farm-in to the Cardon IV block continues our strategy of consolidating oil and gas acreage around the Paraguana refinery complex, the largest refinery in the world," PetroFalcon CFO Garrett Soden said.

"The Robalo structure on the Cardon IV block has multiple-TCF [trillion cubic feet] potential and if successful, could offer significant upside for PetroFalcon shareholders," he continued.

PetroFalcon, now the chosen local partner of both Chevron and Repsol for offshore E&P in the Gulf of Venezuela, is committed to expanding in the South American country, Soden added.