Star Energy Farms into Onshore Denmark

Star Energy has signed a letter of intent with Tethys Oil Denmark AB to enter into a farmout agreement that will give Star a 20% interest in two Tethys-operated onshore Denmark licenses.

The farmout arrangement covers onshore Denmark licenses 1/02 and 1/03 and calls for Star to pay 20% of historical costs and 40% of the cost of an exploration well on license 1/02, programmed for Q4 2006. The total cash consideration is estimated at GBP1.02 million (US$1.9 million), including drilling costs.

The Karlebo-1 exploration well is planned to test a thick sequence of clastic reservoirs in the Lower Cretaceous and Triassic formations, with the Lower Cretaceous Vedsted Formation and Triassic Bunter as primary targets. The area is relatively under-explored: the nearest wells, albeit 50 kilometers away from the target, have proved excellent reservoir quality. The hydrocarbon source rock is believed to be the organically rich Cambrian Alum Shale, with gas the most likely charge. The target structure has the potential to contain more than 1 TCF of gas reserves.

Star Energy’s clear focus is the development of U.K. onshore gas storage. However, with the U.K.’s increasing dependence on imports from continental Europe, the company has been seeking opportunities to participate in gas production and potential gas storage in several countries that contribute to the dynamics of the European gas supply equation.

The two licenses in question lie close to infrastructure linking Denmark with the major northern European gas hubs. Thus the participation with Tethys offers significant potential upside in a strategically important location.

“This is an exciting development for Star,” said Roland Wessel, the company’s chief executive. “Our 20% interest potentially provides us significant upside from what is a high-risk well, in a strategically important location.”