Red Sky Energy Ltd (ASX:ROG) has executed a farm-out agreement and will enter into a joint operating agreement (JOA) with Santos Ltd (ASX:STO) covering the Innamincka Dome projects within the Cooper Basin in northeast South Australia.
The agreement includes the company’s licences, including PRLs 14, 17, 18, 180, 181 and 182, and will see Santos subsidiary Santos QNT Pty Ltd inject $9 million in capital into the Innamincka Dome projects.
This transaction will accelerate the development strategy for Red Sky's Flax and Yarrow projects with a well-capitalised partner.
Partnership validates strategy
Managing director and CEO Andrew Knox said: “We are pleased to welcome Santos as a partner across the Innamincka Dome projects – this partnership validates Red Sky’s strategy to develop high-quality assets which can be brought into production relatively quickly.
“The Red Sky-Santos transaction is well-timed to take advantage of the historically high AUD oil and gas prices in the current environment.”
Terms of agreement
The terms of the agreement provide for Santos to earn an 80% interest and operatorship in Red Sky’s Cooper Basin licences, collectively known as the Innamincka Dome along with the following considerations:
- Fund 100% of the 50 square kilometre 3D seismic over the Yarrow gas field in PRL17 up to a maximum gross cost of $1 million;
- Fund 100% of an appraisal well in the Yarrow gas field up to a maximum gross cost of $3 million;
- Fund 100% of an appraisal well in the Flax oil and gas field in PRL14 up to a maximum gross cost of $5 million;
- Subject to satisfactory appraisal outcomes, initially fund 100% of any approved development of the fields, with Santos to be repaid for Red Sky’s share of development expenditure; and
- The farm-out agreement and transfer of 80% interest in the licences are conditional on a number of standard approvals including ministerial approval and licence registration.
The Flax project contains a 2C contingent resource of 9.9 million barrels of oil and 24 BCF of natural gas with in-place infrastructure and six production wells that produced around 180,000 barrels of oil between 2009 and 2015 when it was closed down due to low Australian dollar oil prices.
Yarrow project which contains a 2C contingent resource of 20 BCF of natural gas.