Shares in AIM listed exploration and production group Caza Oil & Gas (LON:CAZA) dropped by 8.5% to 5.3p this morning after the company announced that it had farmed out a substantial part of its holding in the Arran prospect, which lies in Acadia Parish, Louisiana. The participation agreement names Caza, as operator, and requires Pass Petroleum Inc to fund 100% of the initial appraisal costs attributable to Caza's 50% working interest in the prospect to earn a 37.5% participation interest.

The farm-out came as Caza released an update on its performance for the three months to March 31, 2010. Revenues from oil & gas sales increased 26% to US$0.7m while costs during the quarter were marginally down at US$0.9m from US$1.0m last year. The company noted that production had decreased by 6% to 106,400 thousand cubic feet equivalent (Mcfe). However, it said that a successful completion at the recently drilled Matthys-McMillan Gas Unit #2 well should more than offset this decline and upcoming drilling projects, such as Arran, if successful, would expose Caza to larger reserves and increased production.

The Matthys-McMillan Gas Unit #2 development well is located in the Wharton West Wilcox Field and was drilled to a total depth of 15,000 feet. Caza is now planning to attempt a natural completion in the near future ahead of fracture stimulating the well at a later date.

Subsequent to the quarter end, Caza entered into a contract with Patterson Drilling to drill the Bongo Prospect in Wharton County, Texas. Work there is expected to begin within 45 days and Caza is in the process of farming out part of its current 65% working interest to a 40% working interest.

W. Michael Ford, Caza’s chief executive, said: “Caza’s strategy is to utilise advanced technology to de-risk large exploratory targets, reduce single project exposure through farm out arrangements and to increase the number of projects drilled. The farm out of the Arran prospect to Pass fits with this strategy. If successful, the Arran prospect will open up numerous development locations and prove up significant potential reserves for Caza. We plan to drill this prospect in the third quarter of 2010.”

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