Red Sky updates farm-in agreement
THE BOURSE WHISPERER: Coal Seam Gas exploration company Red Sky Energy has been busy on its Clarence Moreton project in New South Wales.
Recent drilling of two core holes, Annvale 1 and Talma 1 has earned the company a 30% interest in permits PEL 479 and 457.
According to the company’s Australian Securities Exchange announcement the Talma 1 core hole in PEL 457 was the discovery well for what it considers to be a prospective gas resource within the Kangaroo Creek Sandstones.
The company is proposing a pilot well for this gas resource, which it said could underpin a new power station connecting to the adjacent high voltage power line.
To facilitate the go-ahead for the pilot, Red Sky has re-negotiated its farm-in agreement with its Joint Venture partner Clarence Moreton Resources.
A binding term sheet has been executed, with the following key terms:
– The initial 30% interest in PEL 479 and 457 can be increased to 70% in four stages;
– Each stage of 10% can be earned by drilling one well in each permit;
– The option to proceed can be made after the completion of each stage;
– The proposed Talma pilot will earn a further 10% in PEL 457;
– An initial 30% interest in PEL 478 can be earned by drilling one well, with option to increase interest to 70% as per PEL 479 and 457;
– Once 70% interest has been earned in two permits, Red Sky has the option to purchase the residual 30% interest based on an independent valuation; and
– The farm-in agreement is conditional upon putting in place appropriate funding.
“The ability to increase our interest in these permits in stages gives the Company a lot of flexibility,” Red Sky Energy managing director Rohan Gillespie said in the company’s announcement.
“The 10 per cent increments allow us to review the results from each well before deciding to proceed further.
“The proposed funding facility is ideally suited to this staged approach and avoids the need to repeatedly go back to the market for further funds.”
Red Sky said it has sufficient cash reserves to fund the Talma pilot.
However, to support the revised farm-in and the drilling of subsequent wells, the company said it has agreed terms for a $3 million equity facility that can be drawn down at any time over a 3 year period.
Red Sky is not obligated to use the facility and it can be cancelled at any time.
This facility is still subject to due diligence and documentation, and is expected to be executed within 3- 4 weeks subject to shareholder approval, if required.
The regulatory approval process for the Talma pilot is underway, and landowner consents are in place.