LONDON (ShareCast) - (Sharecast News) - Baron Oil announced a proposed farm-up agreement on Monday, under which it would assign a 15% working interest in the TL-SO-19-16 production sharing contract at Chuditch, offshore Timor-Leste, to a subsidiary of the Timor-Leste National Oil and Gas Company TIMOR GAP.
The AIM-traded firm's subsidiary SundaGas had entered into a memorandum of understanding with TIMOR GAP outlining the terms of the proposed farm-up.

On completion of the farm-up, SundaGas would retain operatorship and a 60% working interest in the Chuditch PSC, while TIMOR GAP would hold a 40% interest, consisting of a new paying 15% interest and its original 25% interest carried to first gas.

TIMOR GAP would be responsible for 20% of all costs, including drilling expenses for the Chuditch-2 appraisal well, estimated at $7.5m in 2024.

SundaGas would also receive $1m in cash payments from TIMOR GAP to cover back costs.

The farm-up agreements were contingent on approval from the board of TIMOR GAP and Timor-Leste's National Petroleum Authority (ANP).

Baron said the transfer of the 15% working interest would only take place after the execution of the farm-up agreements and satisfaction of those conditions.

Its directors estimated that the farm-up with TIMOR GAP would be a streamlined transaction, given TIMOR GAP's existing involvement in the PSC and positive relationships with Timor-Leste's petroleum authorities.

The company did not expect it to require significant additional due diligence, adding that the plan remained to drill and flow test the Chuditch-2 appraisal well late next year, subject to financing and the availability of rig and drilling services.

Regarding the Chuditch-2 appraisal drilling, Baron said a location had been selected, and significant preparation had taken place.

The expected cost was $32m, reflecting updated market rates and inflationary pressures.

TIMOR GAP's commitment through the new agreement would aid discussions and assessing suitable rigs, equipment, and personnel.

The company said it aimed to fulfil its commitment to drill an appraisal well within 12 months of entering contract year three of the PSC.

"We are delighted with, and greatly appreciate, TIMOR GAP's decision to increase its participation in the Chuditch PSC through a paying interest," said Baron Oil chief executive officer Andy Yeo.

"The proposed farm-up is a major step forward, as it provides validation of the project as well as bringing in an early funding partner for the appraisal programme.

"It also reflects the Timor-Leste government's commitment to the development of the country's petroleum resources and its support for our efforts."

Yeo said the company would now advance its drilling planning for the appraisal well, including discussions with other potential funding partners.

"With this proposed farm-up, we move a long way forward towards drilling Chuditch-2, whilst retaining operatorship and a majority interest in the production sharing contract."

At 1342 GMT, shares in Baron Oil were up 0.85% at 0.08p.

Reporting by Josh White for Sharecast.com.

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