KEY PETROLEUM has signed a farmout agreement with Rey Resources for an onshore drilling permit in Western Australia’s North Perth basin.

Key, which currently holds a 77 per cent operating stake in the EP 437 licence, will reduce its stake to 43.47%, while project partner Caracal Exploration will reduce its stake from 23% to 13.06%.

This will see Rey Resources earning a stake equal to that of Key by contributing 86.94% of future exploration costs, capped at $1.7 million for the drilling of the Dunnart-2 exploration well.

Costs over $1.7 million will be apportioned to the parties in accordance with their respective permit equity holdings, Key said.

The well, which has a best estimate potential resource of 2 million barrels of recoverable oil, is planned to be drilled to a depth of 670 metres, updip from Dunnart 1, which had recorded “excellent oil shows but was never tested,” Key said.

Key has received approval from Western Australia’s Department of Mines and Petroleum for its Health and Safety Management System for the project, while the land access agreement and turnkey drilling contract are in the final stages of being formalised.

The Application to Drill has been lodged and is awaiting the final DMP approval confirmation, Key said.

Key managing director Kane Marshall said he was delighted to welcome Rey to the EP437 Joint Venture.

“We are very pleased to have secured farmout participation with Rey as a significant milestone towards our exploration activities in the North Perth basin,” Mr Marshall said.

“It not only provides Key with the ability to control costs associated with exploration activities while drilling high impact prospects but demonstrates that the Company and its Board continues to deliver on its strategic exploration goal.”

“The timing of the Farmout Agreement is also particularly noteworthy as it comes at a time when no onshore exploration wells are being drilled in Western Australia,” he said.

The farm-out agreement is subject to a number of approvals, including foreign investment review board approval which is expected to be finalised in the coming weeks.

Empire Oil & Gas abandoned a 35% stake in the permit in March.