- Red Sky Energy (ASX:ROG) inks a deal with Origin Energy requiring the latter to take or pay gas from Red Sky’s Yarrow gas field until January 1, 2026
- Red Sky will export the gas through Santos-run Moomba gas hub
- Santos recently completed a pipeline connecting Yarrow to its Moomba distribution node
- As at January 1, 2026, Origin maintains the right to extend the contract
- The Yarrow gas field is thought to contain up to nearly 20 billion cubic feet of gas on a contingent 2C basis, a lower-confidence level estimate
- Shares last traded at 0.5 cents
Red Sky Energy (ASX:ROG) has executed a gas sales agreement with none other than ASX200-listed Origin Energy (ASX:ORG).
The news has been warmly welcomed by shareholders this morning, with mostly unanimous support for the move coming from shareholders.
Under a take-or-pay style of contract, Red Sky is set to see a healthy revenue boost as Origin clearly demonstrates its confidence in the producer by binding itself into an agreement that basically can’t go wrong for Red Sky.
Origin will be obligated to take or pay Red Sky’s gas until January 1, 2026. Upon arrival at this date, the former is warranted an option to extend the deal.
Take-or-pay agreements are effectively the closest a gas explorer and producer can get to foolproof recurring payments. As the name suggests, any gas produced by Red Sky that is not off-taken by Origin remains due for payment from the latter.
Gas will be sold at the East Coast Moomba Gas Supply Hub (GSH), owned by Santos (ASX:STO). Moomba is used as the main distribution node for gas produced in the prolific Cooper Basin and smaller Eromanga.
The take-or-pay deal with Origin coincides with Santos’s completion of a gas-carrying pipeline tying together the Moomba GSH and Yarrow gas field, where Red Sky operates. The field has a lower-confidence gas estimate of up to 18 billion cubic feet of gas, though, this should be treated with caution given the 2C Contingent nature of the reserve estimate.
A second oil field eight kilometres away called Flax is thought possible to contain up to 20 billion cubic feet, but on the same shaky 2C basis. The gold standard for a hydrocarbon reserve is ‘Proven.’ Contingent sits at the bottom rung on the confidence ladder.
Based on early pressure testing, the company believes it can achieve a peak rate of five million square cubic feet of gas per day through the Yarrow 3 asset.
Gas from the well comes mainly from the Patchwarra formation, as well as the Tirrawarra sandstone – both local underground geological features responsible for giving the Yarrow gas field its name.
Red Sky management was succinct in its description of what the deal means for the company.
“With this agreement now signed and following the processing phase the gas and liquids will be ready for delivery to market and first revenues from the project,” Red Sky Managing Director Andrew Knox said.
“Red Sky is very pleased with the umbrella gas sales agreement entered into with Origin. Red Sky intends to sell its share of gas production to Origin.
ROG shares last traded at 0.5 cents.