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Phoenicia Energy, a wholly owned subsidiary of Mediterranean Oil & Gas, has signed a conditional farm-out agreement and area of mutual interest agreement with Genel Energy.

Under the terms of the farm-out agreement, Genel Energy will acquire 75% interest in the blocks 4, 5, 6 and 7 located in Area 4 Offshore Malta owned by Phoenicia Energy for a total $10m.

It also includes 100% carry on the first and second exploration wells and Phoenicia Energy will remain as operator until completion of the first exploration well, which is planned to be drilled to a minimum depth of 2,500m.

Genel Energy will provide a financing arrangement to fund Phoenicia Energy’s 25% share of any additional expenditure, if the cost of expenditure of the second well exceeds $30m.

Under the area of mutual interest (AMI) agreement, the two companies will cooperate in acquiring exploration and production assets in the offshore basins of Libya, Tunisia and Malta.

The companies also agreed to share the equity in any asset acquired within the AMI on a ratio of 80:20 between Genel and Phoenicia Energy respectively and the minimum term of the agreement is three years.

Mediterranean Oil and Gas chief executive Dr. Bill Higgs said Genel Energy is a high quality and substantial partner though which the company can go ahead with exploration of Area 4 Offshore Malta.

"We are excited about the opportunities within the frontier acreage of Area 4 and we are moving ahead with the planning of the first exploration well," said Higgs.

"We are also pleased to have the opportunity to pursue other exploration and production prospects offshore Malta, Libya and Tunisia jointly with Genel."

"The geological similarities to Area 4, together with our combined technical expertise, give plenty of scope to unlock additional value in the region.

The transaction is slated to be complete by the end of October 2012 and is subject to approval by the Maltese Minister for Resources and Rural Affairs.

The deal is also conditional upon securing a one year extension of the first phase exploration period of the Malta Area 4 licence.

Image: Genel Energy will acquire 75% interest in Area 4 located offshore Malta. Photo: Genel Energy.