Australian oil and gas explorer and developer Red Sky Energy (ASX: ROG) has entered into a farm-out and joint operating agreement with Santos (ASX: STO) to progress its Innamincka Dome licences in South Australia’s onshore Cooper Basin.
The agreements will help Red Sky accelerate development of the Yarrow gas field (PRL17) and the previously shut-in Flax oilfield (PRL14) which it acquired from Beach Energy (ASX: BPT) in May.
Yarrow contains a 2C contingent resource of 20 billion cubic feet of natural gas.
Flax contains a 2C contingent resource of 9.9 million barrels of oil and 24 billion cubic feet of natural gas with in-place infrastructure and six production wells.
The wells produced around 180,000 barrels of oil between 2009 and 2015 when the field was closed due to low Australian dollar oil prices.
Innamincka also contains the Juniper oil and gas target with modest existing 2C contingent resources and significant exploration potential, as well as three other unexplored licences.
Under the terms of the new agreements, Santos stands to earn an 80% interest (and operatorship) in Yarrow and Flax by funding the development of appraisal wells and the completion of 3D seismic surveys to the value of $9 million.
Subject to satisfactory appraisal outcomes, Santos will initially fund any approved field development and be repaid for Red Sky’s share of the development expenditure out of Red Sky’s share of production.
Red Sky managing director Andrew Knox said the Santos partnership will bode well for advancement of Innamincka Dome.
“We are pleased to welcome Santos as a partner as it validates [our] strategy to develop high-quality assets which can be brought into production relatively quickly,” he said.
“This transaction is well timed to take advantage of historically-high [Australian dollar] oil and gas prices in the current environment.”
In June, Red Sky launched a strategic business review with a focus on scoping near-term cashflow projects with low capital expenditure requirements in order to support exploration and further development activities on the larger projects.
Options with respect to financing larger projects were explored with consideration to self-funding or partner arrangements or a combination of the two.
The Innamincka joint venture partnership will allow Red Sky to benefit from Santos’ significant Cooper Basin technical and operational experience, while the farm-out portion will secure funding for a targeted work program to accelerate development.
At mid-afternoon, shares in Red Sky Energy were up 200% to $0.003, while shares in Santos were down 2.15% to $7.515.