Oil and gas explorer Red Emperor Resources (ASX: RMP) has inked a deal to acquire up to a 70% stake and the right to operate a large offshore oil and gas block in the shallow waters of Western Australia’s North Perth Basin.
The junior today announced a binding letter of intent signed with block owners and joint venture partners Pilot Energy (ASX: PGY) and Key Petroleum (ASX: KEY) to secure an option to acquire the working interest in exploration permit WA-481-P.
Red Emperor managing director Greg Bandy described the block as “predominantly oil-prone, relatively shallow and represents the western side of a large structural trend that onshore has seen recent, material discoveries”.
These discoveries that Mr Bandy refers to include the 18-million-barrel Cliff Head oilfield and the Xanadu oil discovery.
The project also contains undrilled structures that are considered to be directly analogous in form to the trapping mechanisms of the onshore Waitsia gas field, discovered by AWE in 2014.
Red Emperor has also noted the block’s relatively shallow depths of less than 2,500m, which “should help to preserve reservoir quality”.
Mr Bandy said the company is “well-funded to take a position in this play whilst continuing to identify and evaluate additional projects that can potentially provide relatively near-term, high impact drilling opportunities.”
Under the terms of the deal, Red Emperor will fund the completion of an existing committed work program comprising geological and geophysical studies. This work needs to be undertaken within the final year of the current permit term, which expires in mid-February 2020, and is capped to a total of $150,000.
Upon completion of the work program and following a decision by the National Offshore Petroleum Titles Administrator (NOPTA) to renew the permit, Red Emperor will have the exclusive option to acquire a 70% stake and operatorship of the permit by paying the joint venture partners a total of $500,000.
Red Emperor has until 15 days after NOPTA’s approval of the permit renewal application to exercise its option.
This deal means the 40% interest held by current project manager Key will dilute to 12%. Pilot, which currently holds a 60% stake, will reduce to an 18% interest upon the completion of Red Emperor’s acquisition.
The interest to be acquired in the permit will remain subject to a 10% net profits interest in favour of former project operator Murphy Australia WA-481-P Oil. This is to be paid from future hydrocarbon production from any developed discoveries made on the permit.
The WA-481-P permit current covers more than 17,000sq km and the renewal application will be made for an extension of the exploration period of up to a further five years.
This will entail relinquishment of 50% of the outboard part of the permit area, which Red Emperor considers to be non-prospective.
According to the company, the firm work commitment for the first three years of the renewal period is expected to be based on a two-phase seismic program.
While Red Emperor is based in Australia, its recent focus has been on its 31.5% stake in an oil project on Alaska’s North Slope with fellow ASX juniors 88 Energy (ASX: 88E) and Otto Energy (ASX: OEL), where exploration well was drilled at the Winx prospect earlier this year.
Red Emperor also held offshore oil and gas interests in the Philippines in joint venture with Otto but during the September quarter, it announced its intention to withdraw from this asset.