The agreement covers a Production Sharing Contract (PSC) over the Massawa Block, which gives the joint venture exclusive rights to explore for hydrocarbons in the Massawa Block for up to 7 years.

The block lies in the salt basin of the southern Red Sea to the south of a large number of commercial oil and gas fields in offshore Egypt which have been discovered over the past 20 years.

Within the Massawa Block itself, oil has already been seen in a number of surface oil seeps in the Dahlak Islands.

The exploration program will commence with re-mapping of the existing seismic data and seismic reprocessing followed by the acquisition of new seismic data. Farminees may then be invited to earn equity in the block by drilling one or more exploration wells.

"Eritrea currently has no indigenous hydrocarbon production. Much of the earlier exploration work in this very interesting petroleum province was curtailed by a protracted and now settled Eritrean/Ethiopian border conflict.

"The government is keen to advance the country's economy by promoting the development of energy resources following the cessation of hostilities 3 years ago," said Pancontinental CEO, Andrew Svalbe.

Hardman's managing director Ted Ellyard believes that the application of modern technology could open up the region's unexplored fields.

"We have been investigating the potential of offshore Eritrea with our Australian partners for a considerable time and we are pleased to have now finalised the licence terms with the government of Eritrea," said Ellyard.

"The Massawa Block has indications of hydrocarbon potential from earlier exploration work and we believe it will benefit from the application of modern seismic evaluation techniques."

The interests in the joint venture are Afrex 40%, (Operator), Pancontinental 30%, Hardman 30%.