AOC farms out two wells to cornerstone investor

THE ROADHOUSE BOWSER: Australian Oil Company Limited (ASX: AOC) has signed a Heads of Agreement with Northern Gulf Petroleum (NGP) to drill the Alvares and Dempsey prospects in the Sacramento Basin of California.

NGP will fund the drilling of both wells and earn a 50 per cent interest in each prospect from a Joint Venture led by AOC and involving ASX-listed Xstate Resources (ASX: XST) and private interests.

The Alvares and Dempsey prospects have gross unrisked best estimate recoverable prospective resources of 2.4 trillion cubic feet (TCF) and 1 TCF respectively and drilling is planned for mid-2015, which AOC would operate.

AOC and XST have an option to increase their working interests in these prospects and are expected to have a 30 per cent and 12.5 per cent working interest respectively in each prospect post drilling.

The Heads of Agreement is subject to due diligence on lease title, corporate and operational matters scheduled to be conducted in California during October 2014.

The drilling costs under the 2 for 1 carry are capped at US$4.6 million and US$10 million for the Dempsey Exploration and Alvarez appraisal prospects respectively.

Costs thereafter will be borne according to working interest.

Concurrently, NGP will also take an approximate 15 per cent placement in AOC.

AOC will issue approximately 13.5 million shares at a price of 12 cents to raise around $1.6 million which will be used for acquisition of additional working interest in California, including additional working interests in the Dempsey and Alvares prospects in the Sacramento Basin prior to farmout, and working capital.

“The strategic alliance with the NGP group of companies is material in delivering our vision of being a major gas supplier in the very attractive Californian market,” Australian Oil Company chairman Andrew Childs said in the company’s announcement to the Australian Securities Exchange.

“We are pleased to welcome NGP to our share registry as it expands our reach into Asia and with this alliance AOC shareholders can be confident that the significant gas potential in the Dempsey and Alvares prospects will be funded for drilling.

“This will provide shareholders with a highly leveraged opportunity for share value growth and enhancing the value of AOC’s portfolio of gas and oil projects onshore California.”

Website: www.australianoilcompany.com