The resurgence of Mosman Oil & Gas’s share price continues as the potentially “transformational” acquisition of producing operations in New Zealand move closer to fruition.

STEP - or the South Taranki Energy Project – comprises a number of oil and gas fields and it promises to give Mosman the cornerstone of a sustainable mid-sized oil business.

A NZ$4mln deal agreed on Tuesday, the sale of a 2% royalty over future production, means that Mosman now has covered a significant portion of the necessary funding to proceed with the acquisition.

This royalty deal is one element of what is expected to be a ‘basket’ of funding sources for both the acquisition and the project’s development.

Mosman had already agreed a co-participation deal, which sees WRDLS Ltd take 30% of the project and it is now expected that Mosman will ultimately end up with 70% of the project.

On AIM, the share has about quadrupled in value since the STEP acquisition was unveiled earlier this month. At 8.25p currently, Mosman is back above the March 2014 AIM IPO price of 8p.

The market being as it is, investors could, perhaps, be forgiven for a degree of pessimism.  

Turbulence in the oil sector generally and a lacklustre capital market could quite easily be presented as reasons for investors to doubt the deal can cross the finish line.

Nevertheless, chairman John Barr is confident that Mosman can seal the deal.

Speaking with Proactive Investors Barr said he was very confident of securing the necessary funds to close the deal.

“We’ve been negotiating term sheets,” he said. “And time is on our side, we’ve got until September 30 to demonstrate to Origin Energy [the seller] that we can actually get the money.

“I’m very confident that we will be able to it.”

With the royalty funding Mosman appears to have at least one foot on the STEP project. And the junior oil company’s ambitious strategy of building a sustainable mid-sized oil and gas firm looks increasingly tangible.

“We’ve always had this business plan,” Barr explains.

“The short-term objective will be maximise production at STEP, which will then in turn maximise cashflow.

“There’s a series of relatively small tasks to get that done.”

Barr says the initial programme of work at STEP has been budgeted at around NZ$2.5mln, though he also reveals that other initiatives - that don’t require much extra capital spending - could also see output improve in the near term.

“Presuming these are successful we can really change the production base,” he said.

Beyond the initial ‘production maximisation’ programme, STEP represents more of a medium term field expansion project.

A second phase of work would focus on what Barr describes as ‘the larger project’ – an area that already hosts three horizontal wells, but will need between five and ten more to fully maximise the operation.

So far, just 3% of the recoverable oil in this area has been extract, Barr estimates.

“There’s a long way left to go. But, it is probably a two to five year project.

“Obviously we can’t just bring the team in and do everything at once, there’s a logical process that we’ll go through. But, if we can do it (the 3-5 year plan) then we’ll be talking about some serious production numbers.”

“We’ve always talked about becoming sustainable and with this deal and this project that is what we are trying to do.”

Strategically, the idea is that the company would be able to fund its own exploration ventures without the need for dilutive equity financing.

For the blue-sky assets to the Murchison project, a ‘tight’ project in New Zealand, estimated in the range of 9.5bn cubic feet of gas up to 13.5 trillion, this could be very significant.

Then there are also interests in four basins onshore Australia too, which also present exploration upside.

Another such venture may be the somewhat enigmatic Petroleum Creek – where last summer a fairly recently listed Mosman began a drilling campaign with intial success, but ,  subsequent well did not produce enough oil to be commercial at today’s oil price.

Barr explains that Petroleum Creek’s uncommonly shallow oil reservoirs were lacking a top seal, and as a result carried too much water, but, he believes with further seismic and deeper drilling elsewhere in the area the project could eventually come good.

Petroleum Creek was one of two false starts for the company, which has still only been on AIM for about 18 months. The other was last year’s tilt at Australia listed MEO, in which it ended up as the second largest named shareholder (albeit with 2.2%).

MEO’s Australian shareholders not wanting to receive Mosman’s ‘AIM paper’ was a stumbling block in the offer, according to Barr.

 Barr says that Mosman continues to “watch closely” and as they believe there is a degree of unrest among MEO’s other shareholders.

In the meantime, with attention on its own corporate machinations, the next two weeks will be key for Barr and technical director Andy Carroll as the September 30 deadline draws nearer.

Though Tuesday’s royalty deal means investors can start to be as confident as Barr that this STEP is a deal that can get over the line.