Casino, which is part of offshore Otway basin permit Vic P/44, is 50% held by Santos (who is also the operator) and 50% by Strike Oil. AWE will acquire its 20% from Strike for about $8 million - based on a $1 million cash payment, engineering work ($200-$300,000) and 50% of the cost of the Casino-3 appraisal well ($12-15 million).

AWE also has secured an option to acquire the rest of Strike's 30% of Vic P/44 for $22.5 after the drilling of Casino-3.

According to JB Were's energy analyst, Anthony Bishop, drilling of Casino-3 is planned for the fourth quarter of 2003 but has yet to be approved by the joint venture.

"The aim of the well, if drilled, is to increase gross probable recoverable gas volumes to the likely commercial threshold of around 200PJ, current estimates are about 140PJ," Bishop said in a research note to investors.

"If sufficient reserves are firmed up the next step will be to find a buyer for the gas."

Bishop said the price paid for the stake was reasonable given the potential commercialisation of the field, the exploration upside and the ability to tap into Santos' knowledge of the south-eastern Australian gas market.

JB Were consequently has a "market perform" on AWE for the short term and a "buy" in the longer term.

"Casino has the potential to deliver a meaningful growth option for AWE from about 2006," Bishop said. "If we assume a successful development of 200PJ of gas and a NPV of 0.75/PJ, the project could be worth around $150 million.

"The net value to AWE based on 50% equity and after acquisition costs is $45 million or about 20c/share. However, as this is very early days for this project we have not factored in any value for AWE or Strike Oil at this stage."

At press time AWE shares were trading at 88c.