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Golden State Resources taps A$5.0 million in funding for Paradox Basin #3 well


US-focussed oil and gas company Golden State Resources Limited (ASX: GDN) has secured funding for the Paradox Basin #3 well in Utah.

The $24 million market-capped Golden State Resources secured debt funding of $5.0 million from Social Investments Pty Ltd.

Drilling of the Paradox Basin # 3 production well in Utah has commenced, with drill time expected to be less than 55 days.

Under the arrangement, the GDN will receive AU$2.5 million on 1 February 2010, with an option for an additional advance of AU$2.5 million as agreed by the parties.

Golden State Resources managing director, Richard Sciano said securing the debt funding agreement is an important milestone in the development of the Paradox Basin.

“It is the first occasion the Company has secured debt funding for its Paradox Basin drill operations, and it reflects increased commercial confidence in this project,” said Mr Sciano.

The principal amount of the loan from Social Investments is AU$2.5 million dollars, for a term of six months at eight per cent interest during the term. The loan is secured by a fixed and floating charge over assets of the company. The loan may be repaid at any time before the term expires.

The loan may be repaid at any time before the term expires. There is an establishment fee of AU$187,500 and 5 million GDNOA options expiring 30 Nov 2010 with a 12 cent exercise price. The lender has a first right of refusal to participate in any equity fundraising offered during the term.

Cost estimate for the Paradox Basin #3 well is AU$5.5 million. This is significantly lower than the previous wells (PB#1 and PB # 2) due to target in the Ismay Formation being at a shallower depth.

Richard Sciano said today, “Golden State anticipates it will be able to rapidly expand production from the Golden Eagle Gas Field pending the results from PB# 3.”

Sciano also said "the Golden Eagle Gas field will be developed with further drilling of the Ismay Formation involving shallower wells which are expected to be cheaper and faster to complete.”

The Ismay Formation is the shallowest gas producing zone in the Paradox Basin structure and is the key production zone, accounting for 84.9% of oil and 27.6% of gas production.

Gas produced from Ismay Formation has a high heating value and requires minimal treatment prior to delivery to the Williams gas pipeline - located just six miles from PB#2.

The Williams gas pipeline transports approximately 12% of daily US gas consumption.

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