Key Petroleum Limited advises that it has entered into a Non-Exclusive Agreement with North American based Six Pines Capital LLC (“Six Pines”), whereby:

• Six Pines, for a period of 4 months, on a non-exclusive basis, can raise a minimum of AUD$5,000,000 to cover the costs of drilling to completion and the testing of at least two wells into the Permian within an area defined as Area 3 within ATP 924 in the state of Queensland;
• Area 3 is defined as the majority area surrounding the Marengo Gas Field, being blocks 1768, 1846, 1913, 2057 and 2064;
• On receipt of the minimum amount into an Australian trust account, Key will transfer operatorship of Area 3 to Six Pines, or its financially guaranteed Contributing Entity, the Entity will enter into a formal farmout agreement with Key (based on relevant CAPL or Ampla models) with a firm undertaking to pay for the drilling of at least two wells, to completion, into the Permian within Area 3; and
• In consideration for completing the drilling, completion and testing of the two wells, the Entity will earn a 75% percentage interest in Area 3 and Key’s 25% will be free carried.

It should be noted that drilling, completion and testing of two wells into the Permian is likely to exceed AUD$5 million, however under the terms of the Non-Exclusive Agreement AUD $5 million is the minimum amount required to enter into a farmout agreement.

About the Marengo Area
The Marengo area, defined as Area 3 in the Six Pines agreement, surrounds the Marengo Gas Field operated by Santos and was originally discovered and tested at 1.6 mmscf/d in 1987 from 2.3m pay in the Permian Toolachee Formation. A second test recovered 4 Litres of oil from the Jurassic Odori Formation and this exploration campaign occurred prior to the onset of strained east coast gas markets.

Marnego South-1 was later drilled in 1998 by Santos and the well recovered oil in the Jurassic Adori Formation and gas from the Toolachee and Patchawarra formations. Total gas pay is interpreted to be 7 metres and an additional 0.5 metres of oil pay was encountered. The area is largely unexplored and has had no detailed follow up exploration or appraisal but the area is considered highly prospective for both oil and gas. Better areas of reservoir are anticipated in the greater AP 924 area as demonstrated by the Whanto Field which originally flowed 3.8 mmscf/d from the Permian Toolachee Formation. Importantly, the Marengo Area 3 as defined with Six Pines sits near the Carpentaria Gas Pipeline that connects the Ballera Gas Field operated by Santos south to Mt Isa in the north where it is expected the Northern Gas Pipeline will complete this year connecting Mt Isa to Tenant Creek.

Key has mapped five additional conventional oil and gas prospects that sit on trend south of the Marengo Field and west of the Whanto Field. These prospects are at depths of less than 3,000 metres and apart from the Marengo South and Nice Prospects, the remaining prospects have oil potential within the Hutton and younger formations.

Commenting on the agreement, Managing Director Kane Marshall stated, 
“With the private equity interest in other producing Cooper Basin operators such as Senex and Santos, it is not surprising that North American private equity is now starting to look at lower risk gas exploration adjacent to infrastructure to supply the East Coast gas market. We look forward to working with Six Pines on maturing drilling in two of these five Marengo area prospects and there is plenty of both oil and gas exploration upside in the event of success and subsequent development. The agreement now allows Key to focus its attention on its core areas, particularly the four big conventional targets within the Permian and Triassic along the Gilpepee trend where gas has already been  recovered up dip on the Gilpeppe anticline. We are also excited about the evolution of several large Hutton and Birkhead oil plays sitting between the Inland and Cook Oilfields and the interest that will be generated with improving oil prices. We look forward to further positive updates to our shareholders.”