Santos takes another slice of northern Australia with Armour Energy farm-in

Armour Energy Santos ASX AJQ STO South Nicholson Basin farm‐in oil gas Northern Australia
Santos has inked a binding term sheet to jointly explore and develop Armour Energy’s South Nicholson Basin oil and gas assets.

Following yesterday’s multi-billion-dollar deal with ConocoPhillips, Santos (ASX: STO) is snapping up more oil and gas assets in northern Australia under a proposed farm-in with junior explorer Armour Energy (ASX: AJQ).

Armour today announced it has inked a binding term sheet with the gas major’s wholly-owned subsidiary Santos QNT to jointly explore and develop the junior’s oil and gas exploration project in the South Nicholson Basin.

Under the deal, Santos will acquire a 70% operating interest in an area covering 408 million acres, comprising two exploration permit applications in the Northern Territory, and one granted permit plus three applications in north Queensland.

Armour will retain full ownership of its other tenements in northern Australia covering 774 million acres, including its properties in the McArthur Basin, NT.

The deal follows Santos’ recently announced US$1.39 billion (A$2.05 billion) acquisition of ConocoPhillips’ northern Australian assets including the Darwin liquefied natural gas plant and the offshore gas fields that feed it now and potentially in the future.

“We will be pursuing domestic gas opportunities in the NT from our broader northern Australia gas portfolio where we have significant resource potential both onshore and offshore,” Santos chief executive officer Kevin Gallagher said in a statement on Monday.

Deal terms

Under the signed term sheet, Santos will pay Armour $15 million in cash within 10 days of execution of a formal farm-in agreement.

Further cash payments of up to $15 million will be payable subject to certain conditions being satisfied with respect to the application tenements.

In addition, Santos will carry 100% of Armour’s share of exploration expenditure for a committed four-year work program, up to a cap of $65 million.

Santos’ 70% stake will be earned on a phased approach, commencing with granted Queensland permit ATP1087 as the immediate exploration target, Armour stated.

Armour executive chairman Nick Mather said Santos’ entry into a binding term sheet with Armour supports the company’s view that “the South Nicholson Basin represents one of Australia’s, if not the world’s, great opportunities for the discovery of a new frontier oil and gas province”.

“In contrast to other locations, such as the organic rich Proterozoic basins in Oman and Siberia that host several multi-billion-barrel fields, the South Nicholson Basin has not really been touched,” he said.

Armour chief executive officer Roger Cressey said the transaction “paves the way for accelerated exploration” of the basin “in the best interests of both companies”.

Under the term sheet, the companies anticipate a finalised farm-in agreement by the end of October and intend to enter into a joint operating agreement within three months.

By early afternoon trade, Armour shares had surged 48.98% to $0.073.

After climbing on its announced ConocoPhillips deal yesterday, Santos stock had dropped 2.68% to $7.64 by afternoon trade.

Danica has extensive experience writing and editing business news in the Oceanic and Southeast Asian regions. She has written across a range of industries including oil and gas, mining, energy, science and research, retail and travel. Danica has covered small and large cap companies listed on the Australian, Singapore, Hong Kong, Indian, London and Toronto exchanges.