UK-based oil and gas company Baron Oil is set to assign (farm-up) a 15% working interest in the TL-SO-19-16 production sharing contract (PSC) at Chuditch, offshore Timor-Leste, to Timor Gap.

Timor Gap, a subsidiary of the Timor-Leste national oil and gas company, is an existing Joint Venture (JV) partner on the PSC.

Baron Oil, through its fully owned subsidiary SundaGas, has signed a Memorandum of Understanding (MOU) with Timor Gap for the proposed farm-up.

Under the terms of the MOU, the transfer of the 15% interest is subject to the signing of the farm-up agreements and the satisfaction of the conditions precedent.

The conditions precedent include approval by the Timor Gap Board of Directors and approval by Timor-Leste’s National Petroleum Authority.

Furthermore, the farm-up by Timor Gap is expected to provide Baron with around $8.5m in reimbursement for prior costs and the offset of future spending.

Timor Gap president and CEO Rui Maria Alves Soares said: “I am pleased that Timor Gap is able to deepen its involvement in PSC TL-SO-19-16 in close collaboration with our partner SundaGas.

“All the technical efforts to date are encouraging for successful appraisal drilling of the Chuditch field and for the exciting potential to come from the adjacent exploration prospects.

“As a partner, we support SundaGas in moving ahead with the appraisal well and will take part in the necessary services that Timor Gap can offer during the drilling campaign as well as encouraging participation of other local service providers throughout operations in the Chuditch PSC.”

Upon completion of the farm-up, SundaGas will retain a 60% working interest in the Chuditch PSC and will continue as its operator, while Timor Gap will have the remaining 40% interest.

SundaGas will also receive around $1m cash payments towards back costs between the signing of the PSC and the date of completion.

Timor Gap will pay 20% of all costs, including the drilling of the planned Chuditch-2 appraisal well, which is estimated to be around $7.5m in 2024.

The MOU will be terminated immediately on the execution of the farm-up agreements, or at midnight on 31 January 2024, unless extended by the parties.

Baron Oil CEO Andy Yeo said: “The proposed farm-up is a major step forward, as it provides validation of the project as well as bringing in an early funding partner for the appraisal programme.

“It also reflects the Timor-Leste Government’s commitment to the development of the country’s petroleum resources and its support for our efforts.

“From here, we will advance our drilling planning for the appraisal well which will include discussions with other potential funding partners. With this proposed Farm-Up, we move a long way forward towards drilling Chuditch-2, whilst retaining operatorship and a majority interest in the PSC.”