The Perth-based company yesterday said it would earn the interest in the two licences from Turkish company ARAR Petrol Gaz AUPAS by funding 20% of past exploration costs.

It will also pay for 30% of the Koyunlu-1 well dry-hole cost on a turnkey basis.

Eureka’s total cost including drilling of Koyunlu-1 will be about $A800,000.

Eureka said Koyunlu-1 is in a regionally “well-established” oil system and good oil shows were obtained in the nearest well, some 8km to the northeast.

Located about 17km south and updip of the West Raman oil field, the exploration well is to drill 1380m and will test the eastern portion of a structure with similarities to the Raman field.

Eureka said the structure has the potential to host recoverable reserves of 31 million barrels (P50) or 204MMbbl (P90), if oil is present and commercially extractable.

Oil generation, migration and reservoir risk is considered to be low, the company said.

“The board is very pleased that Eureka has acquired the opportunity to participate in the drilling of such a significant oil play at a relatively low entry cost and protected from well cost overruns by the turnkey contract,” chairman Graham Dowland said.

“The project fits Eureka’s strategy of targeting significant-sized international projects heavily leveraged to success.”

Eureka said following drilling of Koyunlu-1, more seismic may be required to determine the exact drilling location for the second farm-in well. The company’s share of seismic costs will be 20%.

Under the deal, Eureka may withdraw from the farm-in agreement and licences at any time following the drilling of Koyunlu-1.

Eureka said it also has an option to increase its interest in the licences to 45% by purchasing another 25% of them for $US2 million ($A2.6 million).

Koyunlu-1 is expected to spud early next month and reach target depth within two weeks thereafter.