Red Sky Energy Limited (ASX:ROG) will progress a low capex option to produce gas from the Yarrow project in the Cooper Basin of South Australia.
Yarrow contains a 2C Contingent Resource of 20 bcf of natural gas, which is worth about $200 million at current East Coast Australia prices.
The decision follows a strategic review of Yarrow and other projects within Red Sky’s Innamincka Dome projects.
It will complement the company’s recent decision to target the Flax Oil and Gas Project to deliver near-term revenues.
With shares trading at 0.2 cents, the ongoing work and positive results in the Cooper Basin provide the basis for a re-rating.
“Potential for early revenues”
Managing director and CEO Andrew Knox said: “Our 100%-owned Yarrow Gas Project has the potential to be a very low capex gas project and we expect to be able to debt-finance the pipeline.
“We are targeting a five-year operation designed to deplete the existing Contingent Resource which, based on current gas prices, would deliver around $200 million in revenue.
“The Yarrow Gas Project complements our Flax Oil and Gas Project by providing the potential for additional early revenues built on very low capex.
“In addition to the above, we have commenced a strategic process to determine the most appropriate way to finance exploration activities on our larger 100% Juniper and 180/181/182 oil and gas projects.”
Scoping work underway
Red Sky has started scoping work on a five-year project to deplete the Yarrow Contingent Resource.
The project will require a 3D seismic survey to better define the field and enable computer modelling of reservoirs and production.
Major capex items required are six to 10 vertical wells and a pipeline to tie into the grid, which is estimated to cost $12.3 million.
The project is within 25 kilometres of the gas tie in to the pipeline grid which supplies gas across East Coast Australia.
Red Sky Energy's projects are near Innamincka in northeast South Australia.
Positive bank discussions
Positive initial discussions have been held with commercial banks to debt-finance the pipeline.
Three wells have been drilled to define the field with flow rates tested on the Yarrow-1 well delivering 3.6mmcf per day of natural gas.
The company believes it could begin producing gas from Yarrow within three years from commencement based on the following overlapping activities:
- Completion of 3D seismic, interpretation and models (1 year);
- Completion of Field Development Plan (6 months);
- Completion of development wells drilling;
- Completion of production infrastructure and pipeline; and
- Start production within 3 years.
On May 20, 2019, the company completed the full acquisition of four Cooper Basin oil and gas projects known collectively as The Innamincka Dome Projects.
Into and post the acquisition, Red Sky has been working on a strategic review of the projects.
Review of larger projects
With decisions made in relation to Yarrow and Flax, a strategic process is underway to determine the most appropriate way to finance exploration activities at the larger Juniper and 180/181/182 oil and gas projects.
The company expects to report on outcomes of this process in the second half of 2019.