Under a new joint operating agreement, Santos will become the operator of project and fund A$9 million worth of exploration and development costs. 

 

Santos will carry Red Sky for 100% of the costs of acquiring 3D seismic over the Yarrow gas field in PRL17 and then fund an appraisal well in the field. 

 

Independent oil and gas consultant RISC estimates the Yarrow conventional gas field contains a 2C contingent resource of 20 billion cubic feet of gas.

 

Santos will also drill an appraisal well in the Flax oil and gas field in PRL14, a field which RISC believes holds a 2C resource of 9 million barrels of oil and 17.7Bcf. 

 

Red Sky has long thought both the Yarrow and Flax fields could provide near-term revenue with low capital expenditure. 

 

A third field within the Innamincka project, known as Juniper, could contain between 7.1MMbbl-14.5MMbl of oil in place with a best case recoverable un-risked resource of 1.4MMbbl. 

 

"We are pleased to welcome Santos as a partner across the Innamincka Dome projects. This partnership validates Red Sky's strategy to develop high quality assets which can be brought into production relatively quickly," Red Sky managing director and CEO Andrew Knox said. 

 

"The Red Sky - Santos transaction is well timed to take advantage of the historically high Australian oil and gas prices in the current environment." 

 

In a release this morning Red Sky said it would repay Santos for its share of development expenditure out of future production. 

 

Red Sky also noted that the partnership with Santos would relieve the junior of bond provision obligations with the South Australian government worth $5 million. 

 

In June Red Sky said it was looking to fast-track development of the Innamincka project following a strategic review and was targeting a five-year operation designed to "deplete the existing contingent resource" which it estimated could deliver around $200 million in revenue.

 

The company first acquired the project from Beach Energy.

 

Red Sky shot up today by 300% on the news to 0.4cps.