The company is set to earn the stake in UK Continental Shelf Licence P1918, which covers the Colter Prospect lies in Bournemouth Bay, immediately south of the Wytch Farm oil field.
A historic well, drilled in 1986, encountered oil in the area and the plan is to appraise the reservoirs with the new well.
The new Colter well will be drilled down to a depth of 1,800 metres, in a water depth of 16 metres, and it expected to get underway in the second or third quarter of this year. It is estimated that the well will have a total cost of £6.4mln.
"I was deeply involved in the interpretation and identification of the Colter prospect and I am very pleased that Baron will be able to participate in the drilling of it, albeit with a small interest,” said Malcolm Butler, Baron Oil chief executive.
“The prospect lies very close to Wytch Farm oilfield and, subject to agreement with the field partners, any discovery would likely make use of these existing facilities, enabling development to take place very quickly.”
Baron's shareholders exposed to three significant wells in 2018
Butler added: "The signature of this farmout agreement and that for the Wick Prospect completes a portfolio that is planned to give Baron's shareholders exposure to three significant wells in 2018."
The deal is with Corallian Energy will see Baron will pay 6.67% of the well costs as well as past costs, in order to acquire the 5% stake. The earn-in to the project is capped at a forecast gross cost of £8mln (i.e. Baron won’t pay more than 6.67% of £8mln).
Baron estimates it will pay a total of £425,000 to acquire the stake in Colter.
Additionally, the company updated on the Wick prospect which is subject to a separate partnership agreement with Corallian.
For Wick, located in the North Sea, a definitive farm-out agreement will see Baron acquiring a 15% stake in the licence and in return it will pay 20% of the well costs.
In late morning trading, Baron Oil shares were 7.5% higher at 0.43p.
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