ARMOUR Energy has acquired a series of petroleum resources, tenures and production and transport infrastructure assets in the Surat basin from Origin Energy for a combined $13 million.
All located on the Roma Shelf portion of the basin, the assets include stakes in 19 production licences, 12 of them being operating stakes, four authorities to prospect (ATP) and four petroleum pipeline licences.
Some of these licences will be subject to preemptive rights, though these have been waived in the case of Santos.
Armour estimated the assets subject to preemptive rights were worth about $3.5 million of the $10 million consideration, but said that as these were mainly ATPs, the effect on its predicted contingent resources would be minor.
Armour will pay $10 million up front for the assets, and then $1 million every year for three years from the first anniversary of gas sales over the permits.
Debt funding and existing cash reserves will be used to fund the acquisition, with Armour having received a funding proposal from major shareholder DGR Global which proposed a debt financing package of $15 million on commercial terms.
Armour is also in advanced discussions with other third party financiers both as an adjunct to, and alternative to, the DGR Proposal.
In its announcement, Armour said it believed there was potential for a further 115 billion cubic feet of gas with an associated 1.2 million barrels of condensate and 200,000 tonnes of liquefied petroleum gas in well-defined prospects and leads.
This assumption was based on seismic interpretations conducted by Armour itself of previous owners and as the results of well drilling, the company said.
“Appraisal and wildcat drilling will commence following the restart of the Kincora plant, however there is no certainty that it will be commercially viable to produce any portion of the prospective resources evaluated.”
As part of the deal Armour will also acquire the gas, LPG and condensate processing facilities at Kincora, south of Roma, which have been on care and maintenance by Origin since 2012.
This is in addition to its acquisition of a dedicated pipeline connecting the plant to the Roma to Brisbane pipeline at Wallumbilla and gas compression and storage facilities including the Newstead underground gas storage facility.
Newstead has a capacity of 7.5 petajoules of gas and currently holds 2.3 petajoules – available for immediate sale following the recommissioning of the Kincora gas plant.
Potential exists to lift the capacity of the facility by a further 19 petajoules from other reservoirs, with Armour saying this potential created an opportunity for the company to participate in the gas trading business.
Armour, which says the total infrastructure package has a replacement value of over $250 million, said the assets had become non-core to Origin, adding that the potential of the above-ground facilities and below-ground prospectivity had not been fully realised.
Recommissioning the Kincora plant would take between six and 12 months, after which Armour said it would be able to produce between 7 million and 9 million standard cubic feet of condensate per day.
Armour would also be able to produce oil within one month of an ownership transfer, with production starting at 50 barrels per day from the Emu Apple and Riverslea fields, it said.
Company executive chairman Nick Mather said Armour’s transition to becoming a producer was an important step in its evolution and added another aspect to the Surat basin.
“It’s been the birthplace of a number of great companies and I have no doubt that there is a lot more oil and gas to be produced in the Roma shelf,” he said.
“As well as immediate production we’re attracted to the huge unconventional wet gas and oil upside in the Permian rocks on the eastern flank of the Roma Shelf. It’s been largely ignored despite being important on the eastern side of the basin.” Armour chief executive Robbert de Weijer said the deal would transform the company.
“Combining these producing assets to our large and highly prospective acreage position in Northern Australia sets us up to become a major supplier of hydrocarbons to domestic and export markets in the short and longer term,” he said.
“We will be able to apply our considerable experience in production operations, drilling, well stimulation, exploration and project management.”