June 5, 1997 Odyssey Petroleum Corporation has entered into a binding letter of intent with Canadian Trident (88) Exploration Ltd., replacing the previously announced option agreement. Odyssey will form a new subsidiary, Odyssey Petroleum (Ukraine) Ltd., to explore and develop the Dolina Field in western Ukraine. Under the terms of the letter of intent, which will be incorporated into a Unanimous Shareholders Agreement between Odyssey and Trident (88), Odyssey will own an 80 % equity interest in Odyssey (Ukraine), and is responsible for 100 % of the capital requirements of the new subsidiary. Trident (88) will own a 20 % equity interest in the new subsidiary. Odyssey will receive 90 % of the net cash flow of the subsidiary, up to a maximum of $ 10 mm. This is the minimum anticipated expenditure during the first three years of development. Thereafter, Odyssey will receive 80 % of the net cash flow.
Under the terms of a Protocol of Intentions between the Ukrainian national oil company, UKRNAFTA, and Trident (88), originally executed December 7, 1995, Trident (88) has the exclusive right to negotiate an agreement with UKRNAFTA to explore and develop the Dolina Field, western Ukraine. Trident (88) has agreed to transfer this right to Odyssey (Ukraine).
The Dolina Field is located 520 km west of the capital of Kiev and 60 km west of Ivano-Frankivsk. An international gas pipeline runs through the field and international oil and products pipelines are located in the vicinity. Oil from the field is presently being piped to the Drohobych refinery 48 km to the North; existing production is approximately 4,000 bopd.
Trident (88) has estimated that the Dolina Field contained in excess of 1.234 billion barrels of oil in place in four different producing horizons. Of this oil in place, 264.5 million barrels have been produced. Through the implementation of Western technology to complete a number of workovers of existing wells, and the drilling of additional vertical and horizontal wells, Trident (88) estimates that anadditional 235 million barrels remain to be recovered. Odyssey's independent engineering consultants are presently reviewing these estimates and the development plan.
The proposed development plan calls for an increase in oil production to over 40,000 bopd over the next three to four years. Most of the oil to be recovered will likely come from an upper zone at depths between 1560 m and 3000 m. Net pay zones in the Dolina Field average 170 m.
The Government of Ukraine has proposed an aggressive schedule to complete negotiations and approval of the terms of the agreement between Odyssey (Ukraine) and UKRNAFTA during the next few months. The Company is also optimistic that commencing further exploration and development of the Dolina Field will result in other opportunities in the upstream oil and gas sector of western Ukraine. It is hoped that full-scale development of the project will commence during the second half of 1997.