The Perth-based company said the farm-out to privately held oil and gas company Nations Petroleum would enable it to be free-carried through the drilling of the Kurnia-1 well and the 2007 2D seismic program. Cooper will also receive a back cost payment of $US550,000 ($A670,000).

These benefits represent a financial exposure reduction of $6.15 million for the company, it said.

Cooper said it would retain a significant (30%) exposure to the South Madura PSC, including the Kurnia-1 well, targeting undiscovered reserves of 199 million barrels (MMbbl) of oil and 256 billion cubic feet (Bcf) of gas.

Chief executive Michael Scott said the South Madura farm-out added considerable value to the company, mitigating risk and enhancing its capacity to pursue new growth opportunities.

“We are extremely pleased with the outcome of these negotiations, which will see us free-carried and highly leveraged in the drilling of a high risk, high reward oil and gas prospect and a 2D seismic program,” Scott said.

“As a consequence of the farm-out, we preserve our cash and we enhance our organisational capabilities within Indonesia with a view to increasing our presence in the country.”

Cooper also announced it would take 100% ownership of the South Madura Exploration Company, which has a low-cost Indonesian operating office.

The office will continue to operate in the South Madura PSC while providing a base to “aggressively pursue” additional exploration and production opportunities in Indonesia, it said.

The South Madura PSC covers the southern half of Madura Island, some 120km northwest of Bali in the East Java Basin. The block lies immediately to the north of the Jeruk and Oyong oil and gas fields.

The Kurnia-1 prospect lies in the south of the PSC and has two target horizons – an upper horizon at about 1260m, which is expected to contain gas in the Ngrayong sandstone, and an oil target in the Kujung carbonate platform of the lower horizon at 3020m.

If discovered, the Ngrayong gas prospect has the potential to yield 256Bcf of recoverable gas, while the Kujung oil prospect has the potential to yield 199MMbbl of recoverable oil (both estimates P50).

Subject to government approval of the farm-out, the final participating interests in the South Madura PSC will be operator Cooper with 30%, Nations Petroleum (60%) and PT Eksindo (10%).