Innamincka today said it has exercised its pre-emption rights at a cost of $US8 million ($A10 million).

Innamincka said it had concurrently entered into a farm-in agreement with South Korean energy company Seoul City Gas (SCG). Under the deal SCG will acquire a 25% interest in PEL 103 for $7 million and its share of ongoing project costs.

PEL 103 contains the Flax oil field, the Yarrow gas field and the Juniper oil field discoveries.

At the beginning of this year, an independent team determined Flax had the potential to contain 3.2 million barrels (MMbbl) of mean oil reserves, while Yarrow was estimated to have 22.8 billion cubic feet of gas and Juniper with 65.8 million barrels of oil.

Innamincka said it also had the option to pre-empt Santos’ bid to acquire Vernon Faulconer’s 50% interest in ATP 543P South for $US9 million but has decided not to do so. It already holds a 50% stake in the permit.

Santos will now buy into this permit and Innamincka said it expected increased activity in ATP 543P, with the introduction of Santos as a joint venturer.

The consultants' review of ATP 543 South was less favourable than PEL 103. The report said the total unrisked mean in-place potential for the leads and prospects was 32MMbbl of oil, with a potential recoverable resource of about 11MMbbl.

However, it warned the permit was high risk because oil migration had not been demonstrated into this marginal part of the Cooper Basin.

Managing director Ross Wecker said the “exciting and satisfying” developments signalled the company could move forward in PEL 103, its main oil and gas permit, in which it now holds a 75% working interest.

Innamincka said the purchase of PEL 103 would be funded through a $12 million credit facility provided by Macquarie Bank.

The company plans to pay back the loan through SCG’s $7 million payment for its interest in PEL 103 as well as an expected equity capital raising in early 2007.