Tower Resources PLC (LON:TRP) shares gained on Monday as the firm agreed to farm-out a 24.5% working interest in its Thali licence in Cameroon to Australia-based private company OiLR.
The farm-out will provide US$7.5mln towards the cost of the NJPOM-3 well at Thali, which has an estimated total cost of US$15-16mln.
Tower will also receive an overriding 10% royalty from the contractor's share of production to cover costs already sunk into the well, with the agreement expected to be signed off formally on 15 April.
Discussions are underway with several other parties regarding a farm-out of up to a further 24.5% interest in the Thali PSC on similar terms.
Transformational well
Jeremy Asher, Tower's Chairman and CEO, said: "We are delighted to have the opportunity to work with Greg Lee and Art Malone of OilLR on this project in addition to securing this funding for the well, and we intend to have the balance of the funding in place by the time this transaction completes.
“This agreement is also consistent with our intention to commence drilling NJOM-3 in June, subject to finalisation of the rig schedule and the service companies' schedules.
“We expect this well to transform the company by converting current contingent resources into proven reserves, so putting us firmly on the path to production in 2021."
In a note to clients, analysts at Peel Hunt commented: "Given Tower’s current low market capitalisation of just £4.7m, a successful drilling outcome would be transformational and could generate returns several multiples of their market cap. In spite of the current negative macro backdrop for the oil and gas industry we anticipate the shares will respond very positively to this deal."
In early afternoon trading, Tower Resources shares were 17.6% higher at 0.5p.
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