In September 2011, after protracted negotiations, Carbon Minerals was pleased to announce that an amended agreement had been reached
between ACM and Santos in relation to ongoing seam gas operations in PELs 1 and 12. This Deed of Settlement included changes
to the exploration program to better assess the seam gas resource potential and especially progression to reserve bookings. The agreement provided for the transfer of an additional 40% interest in PELs 1 and 12 to Santos for a cash consideration of $15 million. This brought the participating interest of the parties in the project to the same level (ACM 35%, Santos 65%) that would have been
achieved at completion of the Pilot Farmin Work Program of the original Farmin Agreement (FIA). Expenditure by Santos on the
Pilot Farmin program prior to this agreement was approximately $22 million of the minimum spend of $30 million that was agreed
in the original FIA.
The Company is pleased with this agreement because it provides a far more effective framework for evaluation
of ACM s assets than was provided in the original FIA, particularly in light of recent social and political focus on seam gas exploration
and development. In addition to providing a cash injection, it incorporates a new work program jointly formulated and agreed
by the parties which is to be completed by June 2013 i.e. one year after the original Pilot Farmin Work Program was due for
completion.
Highlights of the program are:
further exploratory appraisal drilling,
further 2D seismic acquisition,
upgrading of the Kahlua 4-spot pilot,
establishment of a second multi-well pilot in the northwest of PEL1 and
a single-well production
trial at Georges Island (Glasserton property).
ACM will contribute pro-rata (i.e. 35%) to this agreed program up to a capped
amount of $13 million (representing a total spend of about $37 million). Any additional costs in completion of the program are
to be borne by Santos.
As noted, this program is directed to optimising the definition of 2P gas reserves in the north-western
part of PEL1 and adjoining areas in PEL12, an area that includes potential in both the Late Permian biogenic fairway (currently being
assessed by the Kahlua Pilot) and the underlying Early Permian fairway (see MAP). Attainment of these goals will permit a realistic
assessment of the value of Carbon s assets.