Key Highlights

  • The Joint Study and Cooperation Agreement with the Autana Group covers opportunities across South America.
  • Venezuela is the initial focus, with Colombia and Ecuador identified as possible additional areas.
  • Forte and Autana each hold a 50 per cent right to participate in projects identified through the study.
  • No oil resources, reserves or project terms have been disclosed yet.

Forte Energy (ASX:FEL) announced on 4 November that it had entered a Joint Study and Cooperation Agreement with the Autana Group, made up of two private entities, to look for oil exploration, appraisal and development opportunities in South America. Venezuela is the initial focus, with Colombia and Ecuador identified as potential additional areas.

The company linked the timing to recent political changes in Venezuela, which it said have opened avenues for qualified foreign entities to participate in the country's oil sector. Forte has not named any specific projects, basins or resources, so the agreement is best understood as the start of a screening process rather than the Acquisition of an asset.

How the agreement is structured

Forte and Autana will each hold a 50 per cent right to participate in projects identified through the study, and they may pursue opportunities jointly or individually. If Forte chooses to proceed with a project on its own, Autana will be entitled to a minimum 5 per cent net profit interest.

Forte will fund the study up to US$150,000, paid in three equal phases of US$50,000. It has the right to withdraw at the end of each phase without any further obligation, which caps its financial exposure to the study and allows it to reassess after each step. Any costs of acquiring or developing a project identified by the study would sit outside this budget and have not been estimated.

The first phase begins immediately. It involves analysing the commercial requirements for foreign participation in Venezuela and screening the opportunities currently available. Because Forte can withdraw at the end of each phase, the findings of this first stage are likely to be central to its decision on whether to fund the second and third phases, although the company has not set out specific criteria for continuing.

The people involved

According to Forte, the two principals of the Autana Group are native Venezuelans, which the company presents as bringing local knowledge and relationships. Forte's New Ventures Advisor, Pete Bekkers, spent three years with Pluspetrol in South America. For a small company entering an unfamiliar jurisdiction, in-country partners and experienced advisers can be important in navigating regulatory processes and identifying counterparties.

Risks and limitations

This is an early-stage, low-cost study, and its findings are not yet known. No oil resources, reserves or project terms have been disclosed, and there is no assurance that the study will identify an opportunity Forte considers worth pursuing, or that any such opportunity could be secured on acceptable terms.

Venezuela also carries particular jurisdictional risk. International sanctions and domestic political conditions have historically shaped whether and how foreign companies can operate in its oil industry, and those factors can change quickly. Oil projects can also require substantial capital, and Forte's ability to fund any eventual development was not addressed.

The net profit interest provision is another consideration. If Forte proceeds alone, part of any future profits would flow to Autana, which would affect project economics, although the effect cannot be quantified without project details.

What to watch

The next disclosed milestone is the completion of phase one and Forte's decision on whether to continue. Updates on the commercial requirements in Venezuela, any opportunities shortlisted and whether the partners choose to proceed jointly would give a clearer sense of whether the agreement has substance beyond the screening stage. Until then, the study's main value lies in giving Forte a low-cost, capped way to examine more closely a Jurisdiction that it believes has recently become more accessible.