Red Sky Energy’s (ASX: ROG) Clarence Moreton Basin farm in agreement with ERM Power (ASX: EPW) will go ahead after shareholders approved the issue of 150 million shares to ERM.
ERM’s farm-in will accelerate exploration and development Red Sky’s gas acreage in the Clarence Moreton Basin, New South Wales, by funding up to nine wells across three permits.
Red Sky will also be paid up A$2.7 million on achievement of milestones.
The share placement will give ERM a 9.5% stake in Red Sky.
ERM Gas will initially be assigned a 10% interest in PEL 479 and PEL 457 by paying Red Sky A$700,000, leaving Red Sky with a 20% interest in the 2 permits.
The remaining interests will be assigned from the other partner in the permits, Clarence Moreton Resources, in return for cash payments to them.
ERM can earn up to 80% in PEL 478, 60% in PEL 479 and 60% in PEL 457 by funding between 6-9 wells on the three permits in the Clarence Moreton Basin.
It will also pay Red Sky $1 million upon renewal of PEL 479 and an additional $1 million upon renewal of PEL 457.
Red Sky will set aside 70% of the funds, or about $1.89 million to fund its 20% share of expenditure on work programs in PEL 479 and PEL 457.
ERM Gas will also have the option over the next three years to purchase Red Sky’s interests in the two permits for A$5 million each.
The agreement with ERM Gas and Clarence Moreton Resources replaces Red Sky’s original farm-in agreement with CMR, which allowed Red Sky to secure up to 70% stakes in PEL 479 and PEL 457 in 4 stages.
Red Sky has already earned a 30% stake in the 2 permits through its previous activities.
The joint venture is currently in the process of securing a rig to drill the Talma pilot production well in PEL 457 to test the tight gas discovery made by the Talma-1 well in August last year.
Discovery of an unconventional resource could give the partners a potentially large play as the target Kangaroo Creek Sandstone covers 324 square kilometres within PEL 457 and PEL 479.
Kangaroo Creek could hold between 3 petajoules (2.83 billion cubic feet) and 6.5 petajoules of in-place gas for every square kilometre, giving a potential in-place resource of 972 petajoules to 2106 petajoules, or between 0.9 and 2 trillion cubic feet of gas.
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