Drillsearch Announces Cooper Basin Shale Gas Deal with BG Group's QGC

Drillsearch Energy Ltd (DLS) has announced that it has formed a strategic joint venture with QGC, a BG Group company to explore and develop unconventional shale and tight gas resources in the Cooper Basin.

The joint venture involves QGC farming into, and acquiring, a 60% interest in DLS's strategically located ATP 940P covering over 2,000km2 (500,000 acres) of the Central Cooper Basin Nappamerri Trough Shale Gas Fairway.

The Cooper Basin shale gas exploration joint venture with Drillsearch is BG's first shale gas investment in Australia Drillsearch Chairman Jim McKerlie said.

The agreement places DLS in the unique position in the Cooper Basin of having access to QGC's gas commercialisation capacity to support the full scale exploration, appraisal and development of shale and tight gas resources. The Basin is well situated to supply growing gas demand from LNG exports and domestic users in Australia. QGC is currently developing the QCLNG project in Gladstone.

Key features of the transaction include:

- Execution of a Joint Operating Agreement ("JOA") establishing the future joint venture operations in ATP 940P. The focus of the joint venture is to explore and develop shale and tight gas resources in the Central Cooper Basin Nappamerri Trough Shale Gas Fairway;

- Execution of a Farm-in agreement whereby QGC are committing to a five year $130 million three stage exploration and pilot production appraisal program to acquire a 60% joint venture interest in DLS's 100% owned ATP 940P;

- DLS will hold a 40% joint venture interest in ATP 940P and be the operator of the joint venture through the exploration and pilot production appraisal stages with the aim to prove up sufficient shale and tight gas resources to support a full scale development project;

- QGC will fund $90 million of the first $100 million of the five year exploration, appraisal and pilot production program and thereafter QGC and DLS will fund the program on a 60/40 basis;

- Following the completion of the exploration and pilot production appraisal program, QGC will have the right to become the operator of the joint venture to take the shale and tight gas resources through to full scale development;

- QGC and DLS have entered into a Gas Marketing Heads of Agreement providing that, as part of a full scale commercial development, QGC offering to buy DLS's 40% share of gas production from ATP 940P and DLS having the right to supply additional gas from its other Cooper Basin permits up to an additional 10% of the ATP 940P joint venture gas production;

- DLS will issue options to QGC to subscribe for up to 31,622,454 DLS shares at 62 cents per share exercisable any time prior to 15 February 2012 for a 9.9% ownership stake providing DLS with a potential $19.6 million of additional funding;

- QGC will also reimburse DLS for 60% of its historical past costs, capped at $2.5 million; and

- QGC will have the right to withdraw from the joint venture after the end of either the first or second stage of the five year work program upon which QGC's 60% interest in ATP 940P reverts to DLS.

Drillsearch Managing Director Brad Lingo said:

"This joint venture is significant for both the Cooper Basin and Drillsearch. This landmark transaction puts Cooper Basin shale gas resources on the world stage. This transaction is a major achievement for Drillsearch validating not only the quality of the position the Company holds in the Nappamerri Trough Shale Gas Fairway but also the Company's capability as an exploration operator in the Cooper Basin."

"The transaction with QGC (part of the BG Group, a global leader in gas commercialisation), is the most significant milestone in Drillsearch's 24 year history. Importantly, it positions Drillsearch at the forefront of emerging Cooper Basin unconventional resource developments. This provides us with a platform for outstanding long-term growth opportunities and further growth in the Company's already extensive conventional and unconventional gas projects in the Cooper Basin."

All of the Native Title and Environmental Approval process necessary for the award the ATP 940P to Drillsearch has been completed and the formal award of the permit is currently pending Queensland Government Ministerial approval. The commencement of the ATP 940 JV is subject to completion of this process and approval of the transfer of the interest in the permit once issued to QGC.

Source: Drillsearch Energy Ltd.