Under the farm-in deal, Santos is earning an 80% operated working interest in 10 exploration licences covering 16,500 square kilometres that are currently 100% owned by Caspian.

The farm-in deal excludes the shallow potential down to 1,000m in four of the licenses, but Santos also has an option to farm into these shallow development prospects.

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

Santos may yet farm into the shallow blocks and Caspian is considering several options for quickly and inexpensively developing these prospects, but it is the deep targets that most excite the two partners, according to Caspian executive director Colin Carson.

“We have some targets of a hundred million-plus barrels of recoverable oil, and several others in the 10 to 50 million barrel range,” Carson says.

Under the terms of the agreement, Santos will solely fund and operate a phased work program of up to $US28 million over all of the licences within a four-year period.

In addition, Santos has taken a 17.7% direct equity placement in Caspian by investing $5 million.

Caspian recently conducted a review of existing fields in the basin to assist identifying large deep targets in its own acreage.

“The Mingbulak oil field at about 5000m depth in the central Fergana Basin in Uzbekistan shows the basin’s potential for very large deep structures,” Carson said.

Drilled in 1992-3, the first four wells at this field generated strong oil flows of up to 16,000 barrels per day. But the fifth well blew out and unloaded over one million barrels of oil into the surrounding countryside.

“It was a terrible environmental disaster, but with modern western style drilling this sort of event will not happen in our acreage,” Carson says. “But it does illustrate the huge potential for oil in the deeper structures within the basin.”

But deep targets require deep pockets and plenty of patience. Caspian and Santos don’t envisage starting drilling until 2008, hence the junior’s eagerness to get started on the prospects in the shallow parts of its northern Fergana leases.

Any oil it does produce can be easily sold, according to Carson.

Kyrgyzstan lies on the old Silk Road trading route to China, and actually borders northwest China, making it well positioned to feed that country’s ravenous appetite for petroleum. Oil can also be exported by rail to the Black Sea, and the sole Kyrgyz refinery, adjacent to Caspian’s Charvak licence, is working at only a fraction of its capacity.

The country imports about 85% of its oil and energy, and self-sufficiency has become a national priority.

“Oil production has fallen dramatically since the Soviet era and the government is very keen to see it increase,” Carson says.

“They have a very favourable fiscal regime – one of best in the world from an investor’s point of view. The total tax take for petroleum projects is about 35%, including a company tax rate of 20%.”

Foreign investors are also given strong protection under Kyrgyz laws and investors are free to transfer funds to and from the country and repatriate profits. Full foreign ownership of projects is also permitted.

The company also has a strong on-ground presence in Kyrgyzstan.

Dr Alex Becker, who first introduced the prospects to Caspian, provides consulting services as required. Becker has a PhD in structural geology and tectonophysics and more than 20 years experience in petroleum and mineral exploration, tectonics, stratigraphy and regional geology in Central Asia, particularly the Kyrgyz Republic.

New operations manager, Russian-born Andrei Sinelnikov, formerly with Novus Petroleum, recently joined Becker in Bishkek.

Carson says Caspian now has foundations in place for a serious exploration program – a substantial acreage with proven potential in a region with a strong history of oil production, a favourable fiscal regime, a knowledgeable in-country team, and an experienced and well resourced farm-in partner.

Before Santos farmed into Caspian’s Kyrgyzstan acreage, Caspian had not traded above 6c per share in recent times, and was usually well below that mark. Now it is trading in a band between 7.5 and 10c.

It wasn’t that Caspian lacked prospective assets or a sound business plan. But until Santos came along, the relatively conservative Australian investment market was uncertain how to interpret the Caspian story.

Caspian used to be an African-focused minerals explorer known as Afminex – now it is a Central Asian oil and gas company.

The transition – from one sector to another, and from one exotic region to another equally exotic but very different part of the world – was bold, or as ‘Yes, Minister’ scriptwriters would have said, ‘courageous’. And Australian investors were unsure what to make of it.

But Santos is a big player on a strong growth path, and having the company come into its Kyrgyz prospects has been very helpful for Caspian, according to Carson.