Central Petroleum Limited (ASX: CTP) ("Company" or "Central") and farmout partner Total have agreed to increase expenditure for the Stage 1 exploration program of their Joint Venture in the South Georgina Basin by US$35 million.
Stage 1 covers initial exploration activities on the three Queensland permits ATP909, 911 and 912, and the one Northern Territory application area EP(A)132. As Stage 1 started in the second half of 2013, to date 974km of seismic has been recorded on the Queensland permits, with a number of core wells planned to be drilled from April 2014. Exploration will not get underway in the NT until the title has been granted.
In the farmout agreement signed in November 2012, it was announced that US$60 million would be spent on Stage 1, split between US$48.5 million on the Queensland permits and US$11.5 million on the NT permit. It was also agreed that Total would fund the first 80% of costs, with Central paying the remaining 20%.
Under the agreement announced today, Stage 1 expenditure will now be approximately A$105 million (US$95 million) with the additional funding of US$35 million to be spent on the Queensland permits. This effectively brings forward expenditure planned for the Stage 2 and 3 programs, with total expenditure for the 4-year exploration program remaining unchanged at US$190M. The structure of the farmout is also unchanged, with Total having the option to attain Operatorship and hold a 68% working interest in the permits once this total expenditure is reached. The increase in Stage 1 expenditure means the farmout deal will likely reach completion before the end of Stage 3.
The increased expenditure in Stage 1 will allow for multi-zone production tests of some wells subject to satisfactory results from the initial Stage 1 core hole exploration program.
Undertaking these production tests will increase the JV’s understanding of the unconventional gas potential of the South Georgina Basin.Total and Central have put aside funds of US$11.5 million from the total US$190 million program to be spent on the NT permit in the 18 months following the grant of that title.
EP(A)132 is currently awaiting the execution of a Native Title Agreement with the Traditional Owners through the Central Land Council.
Notwithstanding the increase in Stage 1 expenditure, the increase in Central’s financial commitment for Stage 1 has again been deferred in timing (i.e. Total is to pay the first 80% of the original US$48.5 million and the first 80% of the additional US$35 million).
The deferred payment terms on the additional US$35 million may change if at least twothirds of the Company’s listed Options (ASX:CTPO) due to expire in March 2014 are exercised. In that event, Total and Central will contribute concurrently (80% and 20% respectively) for Stage 1 exploration costs for the Queensland permits in excess of the first US$48.5 million.
Provided Surprise West and Surprise East-1 perform as expected, the Company expects to have sufficient free cash flow to fund its share of the increased Stage 1 funding. If two-thirds of the Company’s listed options are exercised, Central will have an additional A$32 million i available funds.
Richard Cottee, Managing Director of Central said "Increasing expenditure in Stage 1 will help accelerate our understanding of the South Georgina gas potential and help determine what activities we undertake in Stage 2 and 3".
"It is also a testament to the commonality of purpose between Total and Central enabled by the harmonious working relations between the two parties", he said.
