Buru Energy Ltd (ASX:BRU) (OTCMKTS:BRNGF) (FRA:BUD) has entered into a farm-out transaction with Origin Energy Ltd (ASX:ORG) (OTCMKTS:OGFGF) (FRA:ORL) for a Canning Basin-wide exploration program that will include drilling the world-class Rafael conventional oil prospect.
The transaction provides the funding and certainty for a basin-wide exploration program commencing during the 2021 Canning Basin operational field season.
In return for funding the agreed initial work program, Origin will earn a 50% interest in all of Buru’s five currently 100%-held exploration permits.
Buru shares have surged, closing more than 45 per cent higher at 13.5 cents, the highest since early March 2020.
Rey agrees to take part
In a separate transaction, Origin will also earn an interest in the EP457 and EP458 permits held by subsidiaries of Buru and Rey Resources Limited (ASX:REY), which has also agreed to participate in the farm-out.
The EP457 and EP458 permits lie to the south of Buru’s 100%-owned exploration permits.
“Successful journey with Origin”
Buru’s executive chairman Eric Streitberg said: “This transaction has been concluded after an extensive and competitive farm-out process that has included thorough technical and corporate due diligence during a challenging period for all parties due to the pandemic restrictions.
“It affirms Buru’s view that the Canning Basin is underexplored and is an attractive area for new field exploration, building on Buru’s existing oil and gas discoveries.
“We are delighted that we now have a firm commitment to drill the world-class Rafael prospect and we will be entering into a rig contract for the drilling program as soon as practicable.
“We are also excited to be joined in the Basin by Origin, who are highly experienced in both the upstream and downstream oil and gas business in Australia and bring particular operational and marketing skills in the dynamic and growing Australian gas market.
“Buru’s predecessor, ARC Energy, also had a long and fruitful joint venture relationship with Origin in the Perth Basin.
“Their joint discovery and development of the Hovea Oilfield in 2001 and the Xyris Gasfield in 2004 kick-started the renaissance of the Perth Basin which has resulted in nationally significant oil and gas discoveries. We look forward to a similar successful journey with Origin in the Canning Basin.”
In addition to earning a 50% interest in all of Buru’s five currently 100% held exploration permits, highlights of the deal include:
- The initial work program includes a commitment to drilling the Rafael 1 and Kurrajong 1 wells as soon as practicable in 2021 after the end of the current northern Australian wet season. Origin will provide individual carry amounts totalling $16 million for these well costs and will provide an additional $1 million payment to Buru in recognition of past costs.
- The work program further includes the acquisition of extensive regional and prospect level seismic programs on the Buru permits during 2021, with Origin carrying the first $3 million of this seismic acquisition expenditure.
- Origin will also carry the first $4 million of expenditure if the joint venture decides to acquire a 3D seismic program over the Rafael prospect area within the Buru Permits after the drilling of the Rafael 1 well.
- Origin has options to either withdraw or fund further activity in two of the Buru Permits. If fully exercised, these options require Origin to fund, on a carried basis, up to an additional $10 million of exploration expenditure to maintain its 50% interests in these two permits.
- The transaction does not include the Yulleroo Gas field, which will be retained 100% by Buru.
Buru will remain as operator of all exploration permits.
The farm-in party, Origin Energy West Pty Limited, is a wholly-owned subsidiary of Origin Energy, a major Australian integrated energy company.
Unlock potential of EP457 and EP458 permits
In regard to the permits currently held jointly on 60/40 basis with Rey Resources, Streitberg said: “The EP457 and EP458 permits have seen little modern exploration and have generally poor seismic coverage, but notwithstanding this, several high potential play types have been identified by Buru’s technical team.
“These plays require a modern, high-quality seismic grid to transform them from concepts to prospects, and the funding from Origin will allow us to acquire this seismic data in a timely and technically robust manner.
“Origin is a well credentialled and experienced Australian energy company and the joint venture welcome their technical and financial support to unlock the potential of these permits.”
The transaction provides the funding to significantly advance exploration on these relatively unexplored permits, where the potential for several new play types has been identified on existing seismic data and by regional geological modelling.
It is expected that the planned Celestine 2D seismic survey will confirm large scale targets for future drilling.
Details of EP457 and EP458 permit transaction
- In return for funding the agreed exploration program, Origin will earn a 40% interest in the EP457 and EP458 permits, with a 20% equity interest being contributed by each of Buru and Rey. The post-farm-out equity interests in both permits will be Buru (40%), Origin (40%) and Rey (20%).
- The initial work program consists of a 2D seismic acquisition survey targeting potential large-scale drilling prospects within EP457 and EP458 (Celestine seismic survey) costing around $3 million. It is intended that the survey will be undertaken during the 2021 Canning Basin field season in conjunction with seismic surveys planned by Buru in adjacent permits.
- Origin will pay the first $3 million of expenditure towards the acquisition cost of the Celestine seismic survey, with any expenditures in excess of this carry amount being paid by the parties in accordance with their participating interests, subject to Buru’s existing loan carry obligations to Rey.
- Origin has options to either withdraw or fund further activity in the permits. If fully exercised, these options require Origin to fund, on a carried basis, an additional $6 million of exploration drilling expenditure to maintain its 40% interests in these two permits.
- Buru will remain operator of the permits.
Origin’s stake in EP457 and EP458
Alternatively, Origin may reduce its interests in each of EP457 and EP458 to 20% after the option exercise date, by assigning a 10% interest in each permit to each of Buru and Rey for $1 each, and with no remaining carry obligation towards any well.
Origin may also decide to withdraw from EP457 and EP458 at any time after the initial work program is completed, until the option exercise date by re-assigning a 20% interest in each permit to each of Buru and Rey for $1 each.