Samson Oil & Gas Limited has entered into a binding agreement with a large US-based independent natural gas and oil producer to sell 24,166 acres of its 40,240 acre holdings in Goshen County, Wyoming, for a cash purchase price presently expected to be between US$ 61 million and US$ 79 million (pre tax).

Samson's Goshen County holdings were acquired several years ago, reflecting the Company's view that the Niobrara Formation represented an oil play that could be developed using horizontal drilling techniques. These techniques and the ability to sequentially fracture stimulate this type of rock in the Williston Basin have rapidly improved over the last two years. As a result of the industry's recognition of the additional resources available by application of the improved technology, Samson expects to see a rapid development of the Niobrara Formation as these techniques are applied to this rock. There have already been some early successes by competitors which have confirmed this potential and raised the profile of the oil play.

As previously advised, Samson has been actively seeking an industry partner for the Goshen County Project. Samson's Board of Directors recognized that full development of the Project would require more capital than was then available to the Company so that a partial sale of its holdings would be prudent to realize the maximum value from the Project. In order to establish the market value of this acreage, the Company invited industry participants to review the acreage and submit a sealed competitive bid. This competitive bid process helped Samson's Board of Directors confirm the fairness of the price and other terms ultimately accepted.

The agreement calls for the sale of Samson's entire working interest in the southern portion of the Company's holdings in Goshen County, though Samson will retain an average 4.8% royalty interest in the leases that are sold. Samson will also retain all of its remaining interests located in the northern part of the existing Project, or approximately 16,300 net acres. Samson presently intends to drill and develop this retained acreage without further material dilution of its holdings, although future developments could alter those plans.

The closing of the transaction, which is tentatively scheduled for July 26th, 2010 is conditional on the satisfactory conclusion of the buyer's due diligence. The final purchase price will depend on a number of factors, including two important conditions, the failure of which may materially reduce the consideration paid. First, Samson is in the process of forming an Exploratory Unit in order to protect some of its existing leases that might otherwise expire later this year. While this process is largely complete, if the Unit is not in place by closing date of the sale, then the purchase price may be reduced. Samson expects that the Unit will be in place by the closing date, though there can be no assurance since it requires the approval of various state authorities.

The second material condition relates to 2,670 acres in Samson’s holdings that are outside the Unit area. The leases for this acreage will expire this year unless drilling operations commence prior to their expiration. Samson is pursuing drilling permits that would allow 1,920 acres in this category to be protected and made part of a post closing adjustment. The purchase agreement also provides that if Samson is unable to deliver marketable title to a significant portion of the contracted properties, then the purchaser has the right, but not the obligation, to cancel the purchase transaction.

Tags: Samson Oil & Gas Limited