The deal is still subject to due diligence but Longreach said it was now proposing to arrange funding for the deal via a subsidiary company, possible a newly incorporated PNG company.
Chairman Boris Ganke said he was unable to reveal all details surrounding the transaction as some of the information was required to remain confidential until the deal is completed.
Ganke said Longreach would be joining ASX-listed junior Southern Cross Exploration, also chaired by Ganke, in the venture with two existing companies. Ganke was unable to reveal the relevant stake each party would hold in the venture.
"We had heard a lot of good things about PNG and certainly companies like Oil Search and Lihir are doing well. So we are not terribly worried about the political situation," he said.
Ganke said the project was on an onshore exploration licence and was "close" to the PNG highlands.
In the chairman's report from November last year it was noted that the company was considering investment in "several oil projects" and as such proposed to incorporate a subsidiary, Offshore Oil.
Longreach said it did not want to create further shareholder dilution of existing capital and would be seeking to have the $1.25 million funded by external investors.
"The sort of money we are talking about, with our share price around A2c, we don't want to issue 100 million shares. We believe that we can structure in such a way that the major part [finance] will come from the investors and Longreach will obviously participate in it," he said.
"That requires a little bit of financial engineering but we hope we will be able to do it."
Due diligence is expected to be completed in around three to four weeks with drilling scheduled to commence in around eight weeks if the deal goes ahead.
The move into PNG comes on the back of a conditional agreement signed last month to rework historic oil fields in the US. Following satisfactory due diligence, Longreach plans to establish a 50/50 joint venture company to start an immediate work-over program on 25 wells in Oklahoma.
Ganke said due diligence was proceeding on this transaction, which he hoped would be completed by the end of February.
Longreach currently holds a 100% stake in the onshore Carnarvon Basin permits EP-369, EP-405 and EP-410, but it is trying to attract farm-in partners to these permits. Longreach also has a 23.38% stake in another Carnarvon Basin lease, EP-439.
