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(Sharecast News) - Europa Oil & Gas said on Tuesday that its associated company Antler Global has signed a binding farm-out agreement with Fuhai Beijing Energy to bring in a partner on the EG-08 production sharing contract offshore Equatorial Guinea, significantly reducing funding exposure ahead of planned drilling.
Under the agreement, Fuhai would acquire a 40% working interest in EG-08 in return for funding 95% of the costs of the Barracuda exploration well, up to a total cost cap of $53m.
Antler would retain operatorship and fund the remaining 5% of well costs, with any cost overruns above the cap shared equally between the two parties.
Upon commercial hydrocarbon sales, Fuhai would have a preferential right to recover its carry, with 45% of the carried amount accruing interest capped at 5% per annum, although that interest would be cancelled if Barracuda did not result in a commercial discovery.
The transaction remained subject to approval from Equatorial Guinea's Ministry for Mining and Hydrocarbons and overseas direct investment approval from authorities in China.
Following completion, Antler would hold a 40% working interest in the licence, alongside 40% for Fuhai and a 20% carried interest for state oil company GEPetrol.
Europa holds a 42.9% equity interest in Antler, equating to a net attributable interest of 17.2% in EG-08.
Europa said updated geophysical analysis indicated prospective resources across the EG-08 block of 2.213 trillion cubic feet on a Pmean basis, with the Barracuda prospect estimated at 893 billion cubic feet.
Antler now intended to drill the Barracuda well at the earliest opportunity, which was expected to be during 2026.
As the licence was pre-production, Europa previously recognised a 2,000 loss in its 2024 annual report relating to its interest in Antler, reflecting minor pre-operational costs.
Chief executive William Holland described the agreement as a key step forward for the company.
"This is a significant milestone for Europa and I am delighted to have entered into this agreement with Fuhai, who are undoubtedly an excellent partner and completely aligned with Antler's ambition to drill and develop the Barracuda prospect at pace," he said.
"Although the deal is still subject to MMHD and ODI approval, we are confident that this will be secured within the coming months and as such have now entered a period of detailed engineering and procurement in order to spud the well as soon as possible."
Holland added that the transaction followed several years of preparatory work.
"The signing of the farm-out agreement with Fuhai is the culmination of three years of hard work to first identify the opportunity at EG08 and then, working as one team with Antler, to work up the prospectivity of the EG08 block then to secure an excellent partner to carry us through drilling," he said.
"The farm-in is without question a great result for Europa and equates to a 2.38-for-one carry which reflects the quality of the asset, namely the high chance of success and the size of the resource potential."
He said 2026 would be a pivotal year for the group as it progressed approvals and prepared to drill.
At 1614 GMT, shares in Europa Oil & Gas Holdings were down 7.02% at 1.79p.
Reporting by Josh White for Sharecast.com.