Armour Energy ltd. (Armour or the Company) disclosed Wednesday that Armour has executed Wednesday Sale and Purchase Agreements (Agreements) to acquire the oil and gas interests of Origin Energy on the Roma Shelf in the Surat Basin, Queensland, Australia for $9.1 million (AUD 13 million) as an initial payment of $7 million (AUD 10 million), then $2.1 million (AUD 3 million) (in $0.7 million or AUD 1 million annual tranches over three years) from the first anniversary of gas sales. The execution of the Agreements follows a comprehensive tender process which culminated in Armour being selected as preferred tenderer in early August.
The acquisition will provide the opportunity for Armour Energy to become, following recommissioning of the Kincora Gas and LPG (liquified petroleum gas) Plant and pending further resource upgrades and discoveries, a petroleum producer for up to 10 petajoules (PJs) per annum of gas, 110,000 barrels of condensate, 21,000 tons of LPG and 100,000 barrels of oil per annum. Condensate is a very light oil which precipitates from gas on natural pressure drops during production and can attract a premium to crude oil prices of approximately 10‐20 percent while LPG sells for approximately $420 (AUD 600) per ton wholesale. Recommissioning the plant and infrastructure is forecast to take 6 to 12 months, following which Armour believes that it will initially be able to produce at 7 – 9 million standard cubic feet per day (MMscf/d). Oil production can re‐commence within 1 month of formal transfer of ownership (as oil production does not require the Kincora plant to be operational) and is expected to commence at 50 barrels of oil per day (bopd) from the Emu Apple and Riverslea fields.
The assets to be acquired include:
Production Licenses and Near‐Term Petroleum Resources
Kincora Gas and LPG Plant and Infrastructure
An Established Gas Storage Facility
Armour estimates the replacement value of the infrastructure at over $175.3 million (AUD 250 million).
In recent years these assets have become non‐core to Origin and the potential of the above ground facilities and below ground prospectivity has not been fully realized.
Armour’s management intend to apply their considerable experience in operations to the recommissioning of the plant and conversion of contingent resources to reserves and production. Armour will also focus on the discovery and definition of further resources using 3D seismic, lateral well drilling technology and well stimulation techniques which have not been applied in this area in the past.
Commenting on the agreement with Origin, Armour’s Executive Chairman, Nick Mather said:
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