Nexus also farmed out a 25% interest to Tap Oil last September, leaving it with a 37.5% participating interest in the project.

Both Santos and Tap Oil will fully fund Nexus’ share of drilling the $A6 million Galloway-1 well, now scheduled for drilling in the third quarter of 2006.

Nexus managing director Ian Tchacos said the new agreement further consolidated the firm’s relationship with Santos.

In December, the two companies made a conditional agreement under which Santos will process then buy up to 350 petajoules of gas over 10 years from Nexus' Longtom field.

“We are very happy to continue our relationship with Santos and are pleased to have the wealth of exploration and operational skills that Santos brings to this project,” Tchacos said.

“This is a further step forward in the Nexus long-term strategy of acquiring and partnering.

“In addition, a key benefit of Santos’ farm-in to the VIC/P39(V) joint venture is ready access to an onshore rig already under contract to them. This will be available to drill the Galloway-1 well.”

Nexus recently acquired close-spaced 2D seismic data in the permit. The Galloway-1 well is designed to test an anticlinal structure identified with this data at both the Top Latrobe and Intra Latrobe levels, Tchacos said.

Galloway-1 will be drilled as an onshore horizontal well using a land rig to intersect the target at an offshore location.

Tchacos said the seismic data indicates the Galloway prospect was more likely to contain oil than gas. If the structure is oil-bearing, it has the potential to contain 28 million barrels of recoverable oil.

“An oil discovery at Galloway-1 has the potential for excellent economic returns as it could be rapidly brought onto production due to its onshore drilling location,” he said.

“Reservoirs in Top Latrobe and Intra Latrobe reservoirs have a history of being highly productive and will probably require only the discovery well and one other well to produce the entire reserve.”

In addition, VIC/P39(V) contains the Angus prospect, which is similar to Galloway and near the Esso-operated Seahorse and Wirrah oilfields.

With 14 million barrels of oil reserves, Seahorse is currently still producing since its discovery in 1978. Meanwhile, Wirrah, which contains about 50 million barrels of oil equivalent reserves, was discovered in 1982, and is yet to be brought onto production.

Nexus said both Galloway and Angus were interpreted as having received oil charge from the same source rocks as Seahorse and Wirrah.

The Angus target, with potential recoverable volume of 6-10 million barrels, would be drilled with a land rig as a follow-up prospect if Galloway proved successful.

The Vic/P39(v) targets were identified by Nexus’ and acquired via the government gazettal system.

“This enables us to offer our shareholders significant exposure to highly prospective reserves upside without diluting our capital base, which would otherwise occur if funding was acquired through equity capital raisings,” Tchacos said.

Joint Venture Interests in the Vic/P39(v) permit following this farm-out will be:

Santos (operator - 37.5%), Nexus Energy (37.5%) and Tap Oil (25%).