For both Armour and Empire the arrival of Aubrey McCledon's private equity-funded American Energy Partners could be the single biggest deals in their corporate histories.
If the deal goes ahead it will instantly make AEP one of the largest landholders in the under-explored intracratonic sedimentary basin with some 146,000 square kilometres of the 180,00sq.km basin, which is considered analogous with prolific producing basins Oman and eastern Siberia.
"One of the key things that I like about American Energy Partners as a company - and I actually saw their operations first hand - is they are an extremely capable company," De Weijer said.
"They have some very capable people and together we will be collaborating on a work program to unlock the vast amount of resources that is in this basin."
Empire's Bruce McLeod said a proven operator with deep unconventional experience is vital to exploring the basin, because he is not convinced companies such as Santos, Origin Energy or even Statoil have developed a mature skillset to operate in an area such as the McArthur.
"I don't think they have any idea what they are doing, to be honest," he said
Promises
Statoil agreed to spend $US210 million over three phases in the southern Georgina Basin, and Hess pledged $US50 million over the Beetaloo Basin. Hess walked away with nothing without even drilling a well, and Statoil completed five wells that did not flow despite finding promising payzones.
Companies can promise huge sums of money, but may not complete their earn-ins or, even if they do, that is no guarantee of success.
McLeod and De Weijer both agreed that AEP was "absolutely" the right partner.
Despite the fact that AEP has struggled under low energy prices and heavy debts incurred to amass a portfolio that stretches from the Great Plains to Appalachia in the US, McLeod believes the company has all the skills needed to replicate McClendon's US success with Chesapeake Energy down under.
"McClendon went from basically nothing to being the second largest gas producer and a top oil producer in a period of about 20 years, so he and his team are probably second to none," McLeod said.
Over two exploration phases AEP has offered spend up to $US200 million, in a mix of cash and debt across Armour's areas, and if it follows a similar model its $US60 million cash offer for phrase one in Empire's areas to the west will also include an offer of debt funding for a total spend of more than $US320 million.
Funding
While Armour has disclosed its second phase $US100 million debt funding agreement Empire has not, however McLeod confirmed to Energy News there have been discussions about a second round, but he did not want discuss them at this stage.
There's an apparent difference between Armour's $US100 million for 75% of 21.5 million acres and Empire's $US60 million for 14.6 million net acres, but McLeod said the figures were actually compatible once all the other cash payments for past work were counted for.
AEP will pay Armour US$11million in cash upon closing of the transaction and a further US$7million upon the earlier of the grant of production licences over at least one million acres, while Empire will be paid $US7.5 million for its past work.
"If you look at them on a dollar per acre basis there is about a 25c difference, and if you look at it on an expenditure basis there is not a huge difference," McLeod said.
There are some stark differences between the two joint ventures as well.
Armour has spent $65 million in the Northern Territory, whereas Empire has spent about $7 million to date.
Empire's northern permits are undrilled, although the company believes it has a good handle on the geology, while Armour has managed to flow gas from the Glyde-1 well and collect more data in its western areas, through promising wells such as Cow Lagoon-1 where a promising gas discovery was made in the Batten Trough.
Gas flows and shows were noted in the Lynott and Reward formations, and around 100 billion cubic feet of resources was defined.
The major question now, assuming the deals are finalised over the next 120 days, is what AEP's objectives are, and how aggressive it will be with its plans.
Harmony
It would make sense for AEP, Armour and Empire to harmonise their joint venture programs, and given the remoteness of the location, sharing mobilisation costs at the very least would be a must.
AEP will probably look at the areas as a single project when planning its seismic and drilling programs, and the fact it is carrying all the costs over the next few years should mean it will avoid the issues that caused bad blood between Statoil, Petrofrontier and Baraka Energy and Resources in the southern Georgina Basin.
Back then Baraka complained that Statoil's choice of wells in its two blocks was not ideal given the Norwegian was looking across four blocks to collect data.
De Weijer told Energy News it was still too early to say what the companies would do, but the program would probably involve a large seismic commitment to better define the subsurface picture and drillable structures.
The $US100 million program would probably encapsulate 3-4 wells drilled and fracced in Armour's acreage, based on drilling rates being experienced by nearby companies such as Origin and Falcon.
And the targets are not simply the unconventional targets, he stressed.
"People always focus on the unconventional, but we are changing both. This area has a mix, and we believe there will be a very significant number if conventional targets as well," De Weijer said.
The Protorozoic-aged strata could offer more immediate opportunities than just the Velkerri Shale or the Barney Creek Formation.
The gas that flowed at 3MMcfpd from the shallow Coxco Dolomite in Glyde-1 attests to that.
McLeod believes AEP will be targeting early production.
"If you look at what Chesapeake did, and how they grew, they didn't go in and do a lot of geological sampling, they targeted production as quickly as possible, and that was how they grew, by producing cash flow," he said.
"I think they will probably take the same approach in Australia, but you will probably want to ask them that."
Commercialisation
Of course, Chesapeake had the benefit of the deep geological understanding of its assets in the US from decades of drilling and significant pipeline networks. The NT lacks that, however De Weijer believes the Top End will not be stranded for long.
"They see this could potentially be very, very large, bit it is the early days, and this is a good entry point for them, by taking a significant part of our acreage," De Weijer said.
"They are excited about the geology and the market opportunities for liquids and gas, and they like Australia as a country to do business in."
Commercialisation options for any resources have changed in recent times.
Not only could the North Eastern Gas Interconnector pipeline proposal open up the east coast gas markets, it could happen before the end of 2018.
"With the NEGI pipeline getting built, and my expectation is that to Mt Isa will be the one selected, sending gas to Gladstone or into the east coast of Australia could be a good value proposition for us and for Australia.
"The more supply we can get into the east coast the better we can address the prospective deficient."
De Weijer said NEGI would not harm any plans of its own to develop a standalone pipeline between its own pipeline link to Mt Isa from the Egilabria wells in ATP 1082, directly west of AEP's areas in Queensland, or the proposed Carpinteria LNG project Armour has previously discussed.
"We speak to the APA Group, with whom we have a heads of agreement, all the time, and that pipeline is still very much alive, and it could from part of our plans."
The AEP deal does not include the two most southern application areas, because Armour wanted to retain control of an exposure to the large area, which could be crossed by the North Eastern Gas Interconnector pipeline, if it selects the Mount Isa option.
He added that with Armour's assets in the NT largely covered by the AEP deal, the company would be free to push its acreage in Queensland and progress its JVs with Lakes Oil in Victoria.
"We believe that our Queensland tenements are also highly prospective, so we wanted to keep them at 100% as well, although we are open to a farm-out deal on those separately."
Egilabria-2 was a "massive success" and probably not fully understood by the market, De Weijer said.
The well was drilled horizontally into the Lawn Shale, fracced, and flowed gas to surface.
"At the end of the day the amount of gas wasn't at a commercial rate, but the amount of learning that we got from it was very valuable, and next time we drill a well I am absolutely confident will show significantly higher flow rates," De Weijer said.
"There is no doubt that there is a lot of high quality gas there, and when you think about monetising it, you can pipe it into Mt Isa or as a greenfield LNG project out of the Gulf of Carpenteria," he said.
De Weijer couldn't say when that well will be drilled, but it could make sense to target drilling by AEP.
De Weijer also said that a new report on the recently identified Tawallah Group, which sits below Macarthur Group formations such as the Barney Creek, is being prepared.
"We are undergoing a third party resource assessment on that as we speak, and we think the Tawallah could be absolutely massive," he said.
US
McLeod said Empire was now free to expand in the US where there are "fantastic opportunities" for smaller operators.
There were limited opportunities for larger operators in the US, which may be one reason AEP has come down under, given the best plays have been sewn up.
He said the recent deal in Appalachia involves wells that were previously on the market for $900,000 six months ago, and while gas prices haven't changed he paid $40,000.
"They are small, but there are deals worth $5-10 million a similar ilk out there," McLeod said.
Empire's funding deal with Macquarie Bank means it can move quickly, and is keen to also look at gas to electricity options.
They have a 6-8 week payout, and within two years an expanded pipeline network will further open up exports from Appalachia to the mid-west US.
