The Sfax Exploration Permit lies on-trend with a known hydrocarbon fairway that includes a number of large (1 billion boe or greater) oil and natural gas fields, and is directly offset by several large producing oil and natural gas fields of up to 350 million boe in reserves. The prospectivity at Sfax is extensive, and numerous medium- to large-sized geological features have been detailed by the recent 3D seismic. In addition, exploration leads have been identified on older 2D seismic lines with adjacent exploration wells having encountered encouraging indications of hydrocarbons.

Geological Targets

Exploration wells drilled by prior operators at Ras El Besh, Jawhara and Salloum in the 1970s and 1990s flow-tested oil at daily equivalent rates of 612, 1,200 and 1,800 barrels per day, respectively, but were abandoned. New 3D seismic illustrates that previously abandoned exploration wells at Ras El Besh and Jawhara penetrated the target zones off the crest of the structures and that additional pay sections could be intersected with properly placed appraisal wells. The targets are limestone and dolomite carbonate reservoirs of Eocene and Upper Cretaceous age that lie at depths between 1,700 and 3,000 metres.

2008 Drilling Contract

Tubulars and well equipment, plus the necessary services, were procured by spring 2008 to proceed with the 2008 drilling program. In May 2008, a drilling contract was awarded for two wells at Ras El Besh using a cantilevered jack-up rig, with the option of drilling two additional wells. In mid-June 2008, the partnership began drilling its first exploration well at Ras El Besh 3 (See Eurogas Commences Drilling Ras el Besh Well in Tunisia) targeting the El Garia formation. If REB 3 confirms the presence of an economic volume of oil, the rig will drill REB 4 immediately after. If REB 4 is drilled the rig will then move to Jawhara to drill JAW 3. If REB 3 is not successful, REB 4 will not be drilled and the drilling rig will move directly to JAW 3 to drill that well.

Production Sharing Agreement

Revenue from the Sfax permit is based on a production sharing agreement, whereby the concession holders - Eurogas, Atlas Petroleum Exploration Worldwide and Delta Hydrocarbons - share the oil production with the Tunisian government oil company, ETAP. The concession holders are responsible for all capital investment and operating costs, and once oil starts flowing are entitled to a share of the oil produced. That share depends on the rate of oil production and is composed of two parts. The first is called "cost oil" and is provided to recover capital and operating expenses. The second is called "profit oil" and is a share of the oil production over and above the cost oil. ETAP receives the balance and is required to pay all taxes, including those of the concession holders, out of its share of production.