Red Rock Resources (LON:RRR) is to be a new partner of Northcote Energy (LON:NCT) at the Shoats Creek field, in Louisiana.
Andrew Bell’s Red Rock has, with the assistance of Northcote, agreed an option deal with project stakeholder Shoats Creek Development Inc (SDI) that sees the AIM company acquire a 20% working interest (14% net revenue interest) in two new wells.
It is set to cost Red Rock between US$500,000 and US$600,000 in aggregate.
The wells will be low cost verticals, into the Fri reservoir targets. These wells will be tagged Luther Moore #21 and Luther Moore #22.
They are expected to deliver near-term production as well as reserves, for modest costs. Red Rock says it anticipates an 89% return on its investment (RR) and, based on a US$45 oil price, payback within one year.
Bell, Red Rock's chairman, described the risk-versus-reward profile as “attractive”. He added that revenue generation will help the company eliminate funding risks and see greater appreciation of what he says is an undervalued portfolio of assets.
"Near-term oil production in the United States is an opportunity the company has identified as key in implementing its pivot towards cash generative assets,” he said.
“By early 2016 we aim to start delivering meaningful revenue streams to Red Rock, reducing and before long eliminating the need to fund externally our much reduced costs of operation.”
The new partnership comes at the same time as Northcote received the go-ahead to start oil sales from the recently drilled Luther Moore 20 well. It owns 93% of that well.
Luther Moore recently beat expectations when it tested at rates of 340 barrels oil equivalent per day.
Northcote also highlighted that, as reward for its part in making the Red Rock deal, it will benefit from an additional interest in the wells.
Randall Connally, Northcote managing director, said: "We are pleased to have permission to sell oil from the LM#20 and also to have Red Rock Resources as a partner in the development of the next several Fri wells at the Shoats Creek Field.
"Having a solid partner led by a capable management team will facilitate continuation of the development programme at Shoats Creek to the mutual benefit of our shareholders."