AUSTRALIA-listed Red Emperor Resources will farm-in to a block in the Palawan basin, offshore the Philippines, after signing a farm-in deal with Otto Energy.

The company will earn a 15 per cent working interest in Service Contract 55 by paying 15% of the costs of drilling an exploration well on the permit.

Red Emperor’s costs are capped at US$5.6 million, beyond which the company has the option to reduce equity from that level, the company said in an announcement.

REd Emperor managing director Greg Bandy said the project had the potential to completely redefine the company.

“After extensive review of many potential projects, the Red Emperor board have not only taken advantage of a depressed oil market that has seen drill rig rates halve and farm-in promotes reduce significantly, it has concluded the robustness of the Hawkeye prospect and leverage to success in follow-up potential a compelling investment opportunity for Red Emperor and its shareholders,” he said.

Following completion of the farm-in, Otto subsidiaries would retain a 68.2% interest in the permit and would remain operator.

Philippines state owned oil company PNOC-EC has also expressed an interest in farming-in to a 15 per cent stake in the permit.

Otto chief executive Matthew Allen welcomed Red Emperor to the joint venture, in which Trans-Asia Petroleum subsidiary Palawan 55 Exploration and Production Company also holds a 6.82% stake.

The company has already signed a letter of intent with Maersk to secure the Maersk Venturer ultra-deepwater drillship to drill the Hawkeye 1 well, which is expected to take place early in the third quarter of 2015.

“Securing a drillship of the capability of the Maersk Venturer for the drilling of the Hawkeye 1 in Q3 2015 is a major event for Otto,” he said.

“We are now finalising preparations to begin drilling and we look forward to updating our shareholders during 2015 as this activity is undertaken.”