Initial Farmin Agreement with Santos
Following initial discussions between the parties commencing in October, 2006, the original FIA was executed between ACM and Santos QNT Pty Ltd in June 2007.  This agreement defined a stage 1 program - the Test Farmin Program wherein a defined and agreed program of drilling and testing was to be completed with 18 months, and at an estimated cost of not less than $10 million.  Stage 2 of the program was designated the Pilot Farmin Program which was to be an agreed program of pilot production trialling to be completed within 24 months of the date upon which Santos elected to exercise its option to proceed.  This phase of activities was provided with a budget of not less than $30 million.  Successful execution of the first (Test) stage would earn Santos a 25% interest in PELs 1 and 12, and successful completion of the Pilot phase would earn it an additional 40% (total 65%) for a total expenditure of not less than $40 million.  Progression of the project beyond the second stage was to be under Joint Venture (JV), funded on a pro-rata basis by the parties.
Kahlua #1 Corehole in PEL 1 - August, 2008.  This well further defined the Biogenic Fairway
Developments during Stage 1
It became clear that the 18-month time allowance for the test Farmin work was inadequate, and an amended program was agreed.  This comprised six coreholes in PEL 1, five in PEL 12, the acquisition of some 370 kilometres of 2D seismic data (both tenements), and pump-testing of the ACM Longlea Pilot well drilled and completed by ACM in 2006.  The parties agreed to postpone pilot testing of the three Georges Island trial production wells (previously completed by ACM) until the Pilot Farmin phase (stage 2).  The stage 1 budget provision (not less than $10 million) was unchanged, but the date for completion of the work was extended by six months, to December 2009.  These changes were incorporated in a Deed of Amendment in December, 2008.
Following a brief assessment of the Longlea well in the northeast corner of PEL 12 , Santos asserted their fulfilment of the stage 1 obligations in December, 2009, and this was followed by a period of almost six months of intense negotiations to define the extent and nature of the second phase program.  In a release to the ASX of June 9, 2010, Carbon announced the decision by Santos to exercise its option to proceed to Stage 2, effective from June 8, 2010, and requiring completion by June 2012 to successfully acquire an additional 40% equity. Notwithstanding this decision, negotiations between the parties continued to be robust until the latter part of 2011.