Karoon Gas (ASX: KAR) will be free carried for the initial US$70 million in well costs for its Bilby-1 exploration well in the Santos Basin off Brazil after partner Pacific Rubiales Energy (TSE:PRE) exercised its farm-in option.
Pacific Rubiales will earn a 35% interest in exploration block S-M-1166 where the Bilby-1 well is located.
This is part of the farm-in agreement under which Pacific Rubiales paid Karoon US$40 million for the assignment of the first of the Santos Blocks and the first US$70 million in well costs for each of the first two wells in the Blocks.
Pacific Rubiales also had the option to participate in the third and final well – Bilby – bringing its total well costs up to US$210 million.
Other blocks covered by the agreement are S-M-1101, S-M-1102, S-M-1037 and S-M-1165.
Karoon's Santos Basin Blocks are located 112 kilometres off the coast of the Santa Catarina region of Brazil, south of Rio de Janeiro, in 400 metres of water.
The first Santos Basin exploration well, Kangaroo-1, discovered oil in Eocene aged rocks.
This discovery will be appraised in a follow up well to be drilled as soon as a suitable drilling rig can be sourced and mobilised to the Kangaroo-2 location.
The Santos Basin has recently yielded multiple oil discoveries and is becoming an exciting area for exploration.
Pacific Rubiales Energy Corp, a Canadian‐based company and producer of natural gas and heavy crude oil, owns 100% of Meta Petroleum Corporation, a Colombian oil operator which operates the Rubiales, Piriri and Quifa oil fields in the Llanos Basin in association with Ecopetrol, S.A., the Colombian national oil company, and 100% of Pacific Stratus Energy Corp. which operates the La Creciente natural gas field.
Karoon had $228.3 million in cash as of 31 December 2012.
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