Red Sky Energy (ASX:ROG) has entered into a binding Terms Sheet to acquire rights to a 50% interest in the Cache Oilfield project in Colorado, USA.
Implementation of the transaction will be subject to shareholder and regulatory approvals as well as completion of capital raisings totalling $2.4 million before costs.
The Cache field produces from the Pennsylvanian age Ismay reservoir at a depth of 5,600 feet and comprises of a series of limestones, dolomites, shales and anhydrides deposited in a carbonate mound.
ROG has been informed that the field is currently producing at a rate of 12 barrels of oil per day from a single well.
Following completion of due diligence ROG will be able to announce information regarding reserves and resources.
It is proposed that modern horizontal drilling technology and extraction techniques be used in order to establish sustainable economic flow rates from new wells.
An initial well is proposed to be drilled to test the production model which, if successful, will be followed by further drilling and a 3D seismic program over the field.
The first stage of ROG's earn-in is an investment of $300,000, by way of loan advance to the Vendors, to be used for the purposes of an oil improvement program with the objective of improving production of the existing well.
As part of stage 1 ROG will seek to complete a placement to professional investors to raise up to $600,000 through the issue of 750 million shares at no less than $0.0008 per share.
If ROG makes the advance and does not proceed with the second stage investment, the first stage loan investment will be repaid from production within the project.
Subject to making the first stage loan investment, ROG will obtain the right to acquire a 50% interest in the project via staged payments.
The vendors will retain a 3% net wellhead royalty of production from the project.
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