Chariot Oil & Gas says that its wholly-owned subsidiary, Enigma Oil & Gas Exploration (Pty) Limited (Enigma), has signed a farm-out agreement with Petrobras Oil and Gas BV, a wholly-owned subsidiary of Petroleo Brasileiro S.A. (Petrobras), in respect of a 50% interest in one of Chariot’s exploration blocks, 2714A, offshore southern Namibia.

A key element of Chariot’s strategy is to pursue farm-out agreements to mitigate risk and expedite exploration and potential development of its assets. This agreement provides Chariot with a strong partner with whom to progress the exploration in this area and strengthens Chariot’s existing cash resources.

Under the terms of the farm-out agreement, in return for a 50% interest in block 2714A Chariot will receive from Petrobras: • a cash payment of US$16.04m, comprised of a cash consideration, and reimbursement of past costs including the recently acquired 3D seismic programme in block 2714A; plus • in the event of a commercial discovery, payment of a production bonus equal to 4.75% (after royalties) of Petrobras’ share of production up to either 2 million barrels of oil equivalent or a value of US$118m, whichever occurs first.

Petrobras has also agreed to, and will pay its 50% share of, a further 1,500km² of 3D seismic acquisition that is expected to be undertaken on block 2714A later this year.

This agreement remains subject to the full approval of the Ministry of Mines and Energy in Namibia. The farm-out agreement includes standard representations and warranties given by both parties and sets out principles for a joint operating agreement that is to be executed within 6 months. Petrobras has also agreed not to acquire any shares or interests in shares in Chariot for a three year period, without Chariot’s consent.

Block 2714A is one of Chariot’s eight exploration blocks located offshore Namibia and covers an area of 5,481km² in the southern Orange basin. Chariot has recently undertaken a 3D seismic programme, acquiring 1,500km² across block 2714A and the neighbouring block 2714B. Reprocessing and interpretation of this data is underway and, as noted above, a further seismic programme is now planned later this year on block 2714A.

Following the completion of the acquisition of further seismic and its subsequent processing and interpretation, Petrobras can elect to enter the first renewal period (the initial exploration period ends on 31st August 2010) which includes an exploration programme commitment to drill a well.

Enigma will remain as operator of the block until the end of the initial exploration period with Petrobras having the option of becoming the operator thereafter. If Petrobras chooses not to enter the first renewal period, Enigma has the option to reclaim its interest in the block.

Kevin Broger, CEO of Chariot said,“Our exploration work to date has always indicated the potential of offshore Namibia and today’s agreement is a significant endorsement of our findings. We are delighted to be in partnership with Petrobras on this concession and look forward to working alongside them in order to prove the value of this block.”

“Petrobras has a wealth of experience and marked success in deep water exploration – notably in the counterpart margin offshore Brazil where they have announced giant oil discoveries. This agreement also dovetails with their stated strategy of searching in deep and ultra deep water opportunities offshore West Africa where they already have a significant presence in Angola.”

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