SOUTH Australia’s Marathon Resources is set to reinvent itself as a gas company after agreeing to farm into a project run by its largest shareholder – allowing it to lift its stake to 65.16 per cent.

ARP TriEnergy, which currently holds a 19.9% stake in Marathon, owns the Leigh Creek Energy project, within PEL 650 and Petroleum Exploration Licence Application (PELA) 647, about 500 kilometres north of Adelaide.

Marathon will pay $400,000 to TriEnergy for exclusive due diligence rights, prior to the groups entering a farm-in and joint venture agreement that will see Marathon earn a 10% stake in the tenements in return for spending $600,000 on exploration.

It will also be granted an option to issue 138 million new shares to TriEnergy shareholders, while cancelling the group’s existing 19.9% share stake, to be enacted once approved by Marathon shareholders.

The move would leave existing Marathon shareholders holding the balance of shares – representing 34.84% of its total issued capital at that stage.

The project covers the existing Leigh Creek coal reserves, and aims to produce gas supplies via in-situ gasification (ISG) – a system Marathon says has been in commercial operation in Russia for over 50 years.

“ISG facilities operate by drilling two opposite sides of an underground coal seam. One well injects air or oxygen into the coal seam to initiate the gasification reaction,” the company said.

“The other well is used to return syngas to the surface where it can be processed further for power, gas, and chemical purposes.”

The present Leigh Creek coal mine is owned and operated by Alinta Energy, with coal produced sent to a coal-fired power station at Port Augusta.

Marathon said the proposed farm-in was designed to be a relatively short and cost effective process to improve the resource standard of the project.

“Marathon believes the due diligence and exploration program (including drilling) contemplated for the next six months can establish considerable resources to required disclosure standards,” the company said in a statement.

Marathon has also appointed TriEnergy chairman Justyn Peters to its board as the group’s nominee.

Should the option be exercised, the Marathon board will be restructured to see three TriEnergy nominees appointed – sitting on the board with two nominees of other Marathon shareholders.

The move is the first investment by Marathon Resources since it was forced to abandon its Mt Gee uranium project in 2011 after the South Australian state government passed legislation to make the Arkaroola region, the site of the mine, a protected area.

Marathon was paid $5 million in compensation by the SA government following the change as an act of goodwill.