Australia: Cooper basin shale gas venture formed

By OGJ editors
HOUSTON, July 27 -- Drillsearch Energy Ltd., Sydney, and BG Group’s QGC affiliate have formed a joint venture to explore for and develop shale and tight unconventional gas resources in the Cooper basin of Australia.

The joint venture involves QGC farming into and acquiring a 60% interest in Drillsearch’s ATP 940P covering more than 500,000 acres of the central Cooper basin Nappamerri Trough shale gas fairway.

The agreement places Drillsearch in the unique position in the Cooper basin of having access to QGC’s gas commercialization capacity to support the full-scale exploration, appraisal, and development of shale and tight gas resources. The basin is well situated to supply growing gas demand from LNG export and domestic use in Australia. QGC is developing the QCLNG project in Gladstone.

Drillsearch said the deal rounds out a three-pronged strategy in the basin: oil exploration on the western flank, development of conventional wet gas along the wet gas fairway, and now unconventional gas projects, with Drillsearch’s stakes all fully funded.

QGC commits to a 5-year, $130 million, three-stage exploration and pilot production appraisal program to acquire a 60% joint venture interest in Drillsearch’s 100% owned ATP 940P. Drillsearch will operate with 40% interest through the exploratory and pilot production appraisal stages to prove a sufficient resource to support full-scale development.

QGC will fund $90 million of the first $100 million of the 5-year exploratory, appraisal, and pilot production program, and thereafter QGC and Drillsearch will fund the program 60-40. Afterward, QGC will have the right to become operator in the development stage.

Under a marketing agreement, QGC will offer to buy Drillsearch’s 40% share of gas production from ATP 940P, and Drillsearch will have the right to supply gas from its other Cooper basin permits up to an additional 10% of ATP 940P joint venture gas production

Drillsearch will issue options to QGC to subscribe for up to 31,622,454 Drillsearch shares at 62¢/share exercisable by Feb. 15, 2012, for a 9.9% ownership stake providing Drillsearch with a potential $19.6 million of additional funding. QGC will reimburse Drillsearch for 60% of its historical past costs, capped at $2.5 million.

QGC will have the right to withdraw from the joint venture after the end of either the first or second stage of the 5-year work program upon which QGC’s 60% interest in ATP 940P reverts to Drillsearch. The various agreements contain change of control provisions.