In separate statements to the Australian Stock Exchange, the two listed companies described the High Island oil and gas exploration-development project as an “excellent low risk, well-defined opportunity with a short timeframe to drilling and production”.

Under a wider agreement, for the next two years Aurora will give recently listed Gawler first rights over all shallow water Texas Gulf Coast opportunities presented to it.

Initially, Gawler will lend Aurora the money to obtain the farm-in interest in High Island, comprising an upfront payment of $US100,000 ($A130,700) and 30% of the costs to drill one well.

Subject to shareholder approval, Gawler will then acquire 100% of Aurora’s wholly owned US subsidiary Cottesloe Oil & Gas.

In exchange, Aurora will receive 8 million fully paid shares, 6 million convertible shares that will convert to fully paid shares if the well is successful, as well as 6 million convertible shares that convert to fully paid shares if Gawler enters a second Texas Gulf Coast project identified by Aurora.

In addition, Aurora intends to replace two existing Gawler directors with Stewart and another appointee.

Gawler listed on the Australian Stock Exchange in September as a uranium and base metals exploration company.

“The directors consider [High Island] to be an outstanding opportunity to participate in a very attractive project at a time of strong worldwide energy demand and prices,” Gawler said in its statement this morning.

“The relationship with Aurora as a strategic shareholder brings industry experience and contracts to Gawler as it seeks to develop its business.”

High Island

Located in 166 feet (50m) of water, the High Island project is surrounded by producing fields and associated production infrastructure.

Project reservoirs have six existing drill penetrations and modern 3D seismic, where analysis has defined targets with the potential to contain 3.2 million barrels of recoverable oil and 38 billion cubic feet of gas from three new wells, according to Aurora.

Federal and other royalties on production equate to 25% giving a net revenue interest to Aurora of 22.5%. In addition, the 30% working is subject to an after-payout back in of 5.4% to US-based private interests.

The new wells would be drilled from one location and brought into production through a simple tripod, connected by pipeline to a nearby existing production platform.

Aurora said the project has low reserves risk, while turnkey drilling arrangements and the use of proven marine production facilities meant it has low engineering risk.

Drilling of the first well is expected to start and finish before the end of the year with the second and third wells in late 2007. Tripod and pipeline construction is scheduled to start following the drilling of the first well with first production in February 2008.