Sundance - which is currently developing its Ashland gas project in Oklahoma - has entered a joint venture arrangement for exposure to over 184,000 acres of potential oil and gas fields in Montana.

The company said the principal aspect of this transaction was an acre-for-acre trade of oil and gas leases between the two companies' primary strategic oil and gas prospects: Continental's Middle Bakken Prospect in Richland County, Montana, and Sundance's Ashland Prospect in Oklahoma's Arkoma Basin.

"The joint venture delivers to Sundance a valuable interest in the highly prospective Bakken play, one of the largest oil field discoveries of recent years in the United States," Sundance's chairman, Charles Binks said.

“This prolific, over-pressured shale oil reservoir fits neatly into Sundance's ongoing successful strategy to diversify our US assets into additional, lower-risk plays which complement our holdings in the gas rich Arkoma Basin. Equally significant are the immediate flow-through benefits to Sundance from Continental's leadership in the application of new technologies, such as 3D seismic and multilateral horizontal drilling.”

Binks said the acquired Bakken acreage was north of the prolific Elm Coulee Field, which since June 2000, has produced more than 19 million barrels of oil and 10 billion cubic feet of gas from over 240 horizontal wells.

Managing director Jayme McCoy said the transaction was a “critical step” in expanding and diversifying the company's US holdings, in addition to Sundance strategically aligning itself with an industry leader.

"The addition of the Middle Bakken play to our portfolio facilitates the company's ability to leverage across both the oil and gas sectors, and enables Sundance to participate in an emerging but increasingly proven petroleum province in Montana with considerable upside," McCoy said.

"In addition, it enhances our exploration opportunities through continued leasing in both prospects within the newly created 184,000-acre Middle Bakken area of mutual interest and 69,000 acre Ashland AMI."

Binks said that Sundance would benefit from Continental's operational experience and expertise in drilling horizontal shale wells.

The principal terms of the agreement include:

- Oil and gas leases have been traded on an acre-for-acre basis from about 56,000 mineral acres owned by Continental in the Bakken play in Richland County, Montana and Sundance's entitlement to more than 6000 acres in its Ashland Prospect in Hughes County, Oklahoma;

- Under the exchange, Sundance Energy will acquire a 100% interest in more than 3000 acres in the Bakken play;

- Sundance will retain a 100% interest in more than 3000 acres in Ashland - representing a 35% direct stake in the Ashland Prospect;

- Sundance will divest its remaining Ashland acreage (more than 3000 acres) to Continental, which, together with acquisitions by that company of further interests from Deka Exploration, Inc. and Trail Ridge Energy, LLC, will move its interests to 41% of the total 8600-plus acre Ashland Prospect;

- Continental will become the Operator of the Ashland Prospect and will remain the Operator of the Bakken play;

- Continental is purchasing a corresponding 41% interest in three of Sundance's drilled wells, along with a 41% stake in the Ashland gas gathering system for a total sum of about US$1.25 million (AU$1.67 million); and,

- Sundance and Continental have established Areas of Mutual Interest in each prospect within which they will share additionally acquired acreage on a pro-rata basis.

The joint venture will immediately start a new work program on the Ashland Prospect. This will include a seismic shoot of 59.57 sq.km of 3D and 80.47km of 2D seismic. This shoot is aimed at identifying faulting, to enhance the placement of up-coming horizontal wells, Sundance said.

It will also help identify structures in the prolific conventional reservoirs both above and below the Woodford and Caney Shales, according to Sundance.

As operator, Continental confirmed it was finalising arrangements with Bronco Drilling, the Ashland Prospect's current drilling contractor, to provide 2 drilling rigs to the prospect, one of which will be a deeper rig capable of drilling on the eastern half of the Ashland prospect.

The first of these two rigs is expected to arrive next month with the other available by mid-2006.

The first well within the Middle Bakken AMI is expected to spud in the second quarter of 2006.