Following months of discussion and negotiations, Baron Oil's board has decided that it will not serve any useful purpose in pursuing a legal action to wind up Union Oil & Gas in the British Virgin Islands.

Furthermore, by pursuing any legal action can damage the company’s farm-out discussions with third parties and can also impact its status of the contract licence for Block Z-34.

As there is only less time remaining for the contract, Baron Oil stated that it needed to come out with a new working relationship with Union Oil & Gas that can help in playing its role in both the ongoing operations and the farm-out discussions.

After Union Oil & Gas failed to meet is financial obligations following the approval of public deed this February, both the companies negotiated and agreed a termination agreement to the FIA that will be effective from 8 September. 

Baron Oil stated that Union Oil & Gas has not paid any funds when the contract operating agreement was terminated this April. With the termination agreement being reached,  Union Oil & Gas has no liability to pay the $2m that should have been paid on completion.

Taking local taxes and other costs into account, it would have been payable but, they were conditional on the receipt of the $2m.

Costs incurred under the FIA between April and August are still due from Union. However as of 8 September, all costs on Z-34 will be shared between Baron and Plectrum Petroleum Ltd Succursal del Peru (a wholly-owned subsidiary of UOGG) on a 50:50 basis.

Baron chairman Bill Colvin said: "UOGG's failure to abide by the terms of the FIA was extremely disappointing, placing Baron in a very difficult position, and the Termination Agreement is definitely not the best financial outcome for Baron."