Shares of Australia-based Red Emperor Resources spiked on Monday after the company signed a binding letter of intent to secure an option over an interest in a large offshore block in the shallow waters of the North Perth Basin, Western Australia.
The ASX/AIM-listed company said Monday it had entered into an agreement with Pilot Energy and Key Petroleum to secure an option to acquire a 70% operated interest in the offshore Perth Basin exploration permit, WA-481-P.
The Permit WA-481-P, which currently covers approximately 17,457 km², sits near the western side of licenses that host the 18 million barrels (“MMBbl”) Cliff Head Oil Field and Xanadu oil discovery. Pilot Energy currently owns a 60% interest and Key Petroleum – 40% interest.
Under the terms of the agreement with Pilot and Key Petroleum, Red Emperor will fund the completion of an existing committed work program comprising geological and geophysical studies required to be undertaken within the final year of the current permit term, up to a capped amount of A$150,000.
As the work program is completed, the parties will formally apply to the National Offshore Petroleum Titles Administrator (NOPTA) for a renewal of the permit, which currently expires on 19 February 2020.
On completion of the work program, and a favorable renewal decision from NOPTA, Red Emperor will have the exclusive option to acquire a 70% interest in, and the right to operate, WA-481-P, in return for paying the JV partners collectively A$500,000.
Red Emperor has until 15 business days after NOPTA’s approval of the permit renewal application to exercise such an option. A renewal decision is currently expected to be received in Q1 2020.
The interest to be acquired in the permit will remain subject to a 10% Net Profits Interest in favor of a former project operator, Murphy Australia WA-481-P Oil Pty Ltd, to be paid from future hydrocarbon production from any developed discoveries made on the permit.
Commenting on the transaction, Red Emperor’s Managing Director Greg Bandy said: “We are pleased to announce the securing of this option over a very large exploration area in the Perth Basin, Western Australia, which reflects the culmination of a significant amount of work by the Board and its consultants. We believe the WA-481-P block is predominantly oil-prone, relatively shallow, and represents the western side of a large structural trend that onshore has seen recent, material discoveries. The Company is well funded to take a position in this play whilst continuing to identify and evaluate additional projects that can potentially provide relatively near term, high impact drilling opportunities.”
Red Emperor said its focus in the block would be on the potentially large closures that are mapped along the western, downthrown side of the Beagle Ridge, abutting the regional scale, N-S Geraldton Fault system.
“These completely undrilled structures are directly analogous in form to the trapping mechanisms of the onshore Waitsia Gas Field but with Permian reservoir targets buried to generally less than 2,500m. The relatively shallow depths should help to preserve reservoir quality,” Red Emperor said.
For comparative purposes, Red Emperor said, the currently best-defined structure, the Doran Prospect that is located immediately adjacent to the west of the Cliff Head Oil Field may have a closure extending over 35km². Cliff Head, that has reserves of 18 MMbbls covers less than 6km².
The prospective trend appears to continue for some 150 km along a N-S strike and will require further geophysical effort, likely including 3D seismic, in order for drillable prospects to be matured, Red Emperor added.
The firm work commitment for the first three years of the renewal period is expected to be based on a two-phase seismic commitment. The JV members would, however, have the right to accelerate such activity, subject to the requisite permitting and financing.
Red Emperor (RMP) share price in London rose to 1 pound at one point following the announcement on Monday morning, up from 47 pence last Friday.