Drillsearch, QGC Sign New Deal for Cooper Basin Project

Drillsearch Energy Limited announced that it has signed a binding term sheet with QGC Pty Limited over new terms covering their ATP 940P Cooper Basin Shale and Tight Gas Joint Venture in central Australia.

Drillsearch owns 40% of ATP 940P and is the Operator. QGC owns the remaining 60%.

Under the original agreement announced in July 2011, QGC committed to a three-stage exploration and pilot production appraisal program of six wells to acquire a 60% interest in ATP 940P. QGC also agreed to fund $90 million of the first $100 million of that program.

The parties have agreed to amend the terms of the joint venture and farm-in agreements to include:

• Consolidation of the three stages in the initial agreement to a single stage, and removal of QGC’s associated withdrawal rights, thereby bringing forward the remainder of QGC’s carry of the initial $100 million expenditure;
• Expansion and extension of the initial agreed farm-in work program from six wells to a commitment to a 10-well program with potential for further acceleration;
• Drillsearch to remain as Operator of ATP 940P until the end of the current permit term in November 2015. QGC will then have the option to assume operatorship.

Furthermore, under the terms of the original farm-in agreement, and as outlined in the ASX announcement of 27 July 2011, QGC held a right to acquire all of Drillsearch’s interest in ATP 940P if a change of control transaction occurred involving Drillsearch before completion of the second stage of the exploration program. Under the new terms, this provision is no longer applicable. ATP 940P Joint Venture The ATP 940P Joint Venture covers more than 2,000km² (500,000 acres) of the Central Cooper Basin Nappamerri Trough Shale and Tight Gas Fairway in Southwest Queensland.

This restatement and extension of the work program to explore and appraise ATP 940P reaffirms Drillsearch’s vision for the project combining its operating expertise in the Cooper Basin with commercialisation options for the gas, including through its arrangements with QGC for gas sales, as outlined in the ASX announcement of 27 July 2011. QGC is one of three companies operating or building LNG plants on the east coast of Australia, which, in combination with surging domestic demand, provides a ready market for gas from ATP 940P.

The ATP 940P drilling program, which began in September 2013, is underpinned by Australia’s largest onshore 3D seismic survey. The Weatherford 826 rig being used for the program has also recently been upgraded with high-pressure, high-temperature equipment.

DeGolyer and MacNaughton, Drillsearch’s independent reserves expert, has estimated a best estimate (not adjusted for the probability of geologic success) prospective resource of 11.1 TCF of gas (potentially recoverable) within the area covered by 3D seismic. Through the work program in ATP 940P,

Drillsearch is aiming to deliver 1.5 to 2 TCF gross of gas in Contingent Resources (2C) by the end of calendar 2014, rising to a potential 3 to 4 TCF gross by mid-2015.

Managing Director Brad Lingo said: “This agreement is a major step forward, representing a significant commitment towards commercialising unconventional gas in the Cooper Basin. We are excited to drive the project forward as operator and we believe that the agreement to allow operatorship to remain with Drillsearch reflects our capability and our disciplined approach to this project, which is differentiated by our 3D seismic program.

“The joint venture has the potential to deliver material returns for Drillsearch shareholders through proving up commercially viable gas from two distinct, recognised plays, namely the REM shale sequence and the Patchawarra tight gas sandstones. We look forward to delivering the results of the production testing program later this year.”