Red Sky Energy acquires CSG company

28/07/2009 - 09:24


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West Perth-based Red Sky Energy has agreed to acquire private company Cydonia Resources, which holds coal seam gas permits in Queensland's Surat Basin, and plans to raise $4 million through a share placement.

Red Sky Energy acquires CSG company

West Perth-based Red Sky Energy has agreed to acquire private company Cydonia Resources, which holds coal seam gas permits in Queensland's Surat Basin, and plans to raise $4 million through a share placement.



The announcement is below:



Key Points:

- Red Sky Energy to acquire up to 100% interest (via a Farm In) in highly prospective Coal Seam Gas ("CSG")permits;

- The permit areas cover approximately 1700km2 in the highly prospective Queensland Surat Basin;

- The permits are well positioned with the major gas fields of Origin/Conoco and BritishGas/Queensland Gas Company only 70km to the north east;

- There is potential to host combined in place gas resources of 8 Trillion Cubic Feet (TCF) of Coal Seam Gas (CSG);

- Experienced exploration and management team led by Rohan Gillespie, former Vice President and Chief Operating Officer BHP Billiton's CSG business;

- Aggressive exploration program planned;

- Commitments to raise $4m via a placement of 200 million shares @ 2 cents each.

Red Sky Energy Limited (ASX: ROG) ("Red Sky" or "the Company") has entered into an agreement to acquire 100% of the issued capital of Cydonia Resources Pty Limited ("Cydonia" or "CRL") that has the rights to earn up to 100% interest in two CSG permits in the highly prospective Surat Basin, Queensland region of Australia.

CRL has the sole right to Farm In to the non-conventional rights of Authorities to Prospect ("ATP") 840 and 904 ("the CSG Project" or "the Project"). The permit areas cover an approximate area of 1700km2, are located close to existing and planned gas infrastructure and adjacent significant acreage positions held by the major CSG/LNG companies.

Red Sky is proposing subject to certain terms and conditions to acquire CRL through the issue of 150 million fully paid Red Sky shares ("Shares") together with 150 million Red Sky unlisted options ("Options") exercisable at A$0.04 each within five years after the date of issue to the shareholders of CRL ("the Transaction"). On closing of the Transaction CRL will become a wholly owned subsidiary of Red Sky.

The shareholders of CRL will also be entitled to receive an additional 150 million fully paid Red Sky shares if specific milestones are met and achieved within a set period. Further details of the agreement to acquire CRL and the terms of the Farm In rights secured by CRL are set out in the annexure to this release.

The Company will also undertake a placement of 200 million new fully paid Red Sky shares at an issue price of $0.02 per share to raise A$4 million ("Placement"). The Company has received commitments from a number of brokers to complete the Placement. The lead manager for the Placement is Indian Ocean Capital. The Company will apply for quotation of the Placement shares on the ASX.

The permits cover approximately 1700km2 in highly prospective Queensland Surat Basin, the most sought after gas exploration address in Australia due to its potential to host substantial CSG resources. The permits lie in the sparsely explored Taroom Trough, where it is thought a major new CSG play comprising Cretaceous age coals could be present within the Bungil Formation.

The Cretaceous coals show in old wells that were targeting deeper plays, with some well completion reports indicating the coals are gassy. The Bungil Formation shows significant lateral extent across the area with thickening over the Taroom Trough.

The CRL technical evaluation, based on the available public data and comparable net to gross coal thicknesses and gas contents within the Surat Basin indicates the permits potential recoverable resource across the Project is 8 TCF*. Furthermore, the permits could contain coals of potentially similar CSG potential to those that were recently sold by Pangaea Resources to Origin for $650m.

On discovery of a significant CSG resource the Project would have numerous development/exit options available to it given the infrastructure in close proximity to the Project. The northern boundary of ATP 840 is only 70kms from the Roma to Brisbane pipeline and the proposed route for the Wallumbilla to Newcastle pipeline passes through ATP 904.

Exploration of the Project will be led by Rohan Gillespie (Managing Director of CRL) and the team at CRL who have industry leading expertise in CSG exploration and gas commercialisation. Rohan Gillespie led BHP Billiton's CSG business as Vice President and Chief Operating Officer. Subsequently he established Energy Infrastructure and Resources Limited (EIR) to undertake corporate advisory work and develop low emission energy businesses.

EIR is a major shareholder in CRL and will manage the CRL work program under a services agreement. At completion of the transaction and Placement, Rohan Gillespie will be invited onto the Board of Red Sky as Managing Director.

This Project represents a major growth opportunity for Red Sky creating significant value for Red Sky shareholders and offering new investors outstanding exposure to exploration in the Surat Basin, one of the most exciting gas exploration areas in Australia.



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