The farmin deal will earn Santos an 80% operated working interest in 10 exploration licences currently 100% owned by Caspian that cover 16,500 square kilometres.

All but one of the leases are in the Fergana Basis, an established petroleum province with a production history dating back more than a century.

Santos said the basin was in part analogous to the prolific hydrocarbon province of the Tarim and Junggar Basins in western China, which contained many large fields.

Total discovered reserves from 58 fields in the Fergana Basin was estimated to be in excess of 1.2 billion barrels of oil and 5.5 TCF of gas, with cumulative production to date of more than 600 million barrels.

Santos managing director John Ellice-Flint said that under the terms of the letter agreement, Santos will fund and operate a phased work program up to the value of US$28 million over all of the licences for four years.

"This is another significant step for Santos as it provides a measured entry into an area which we believe is highly prospective for oil and gas," Mr Ellice-Flint said.

“This move is in line with Santos’ strategy of diversifying its exploration program through a focus on understanding the geology and tying up material exploration positions in prospective hydrocarbon basins.”

Under the terms of the agreement, Santos will solely fund and operate a phased work program over all of the licences within a four year period.

In addition, subject to Caspian shareholder approval, the company will take a 15% direct equity placement in Caspian at an issue price of 3c per share at a total cost of $3 million.

Santos would also be granted an option to acquire a further 40 million shares representing about 4.9% of Caspian’s issued share capital.