Ottoman Energy and Incremental Petroleum – two Perth-based companies operating in Turkey – have agreed to a farm-in arrangement in which Incremental will earn a 15% working interest in the Thrace Basin Licence 3839 from Ottoman including two wells planned for drilling early next month.

The farm-in consideration is A$3 million in future exploration expenditures after the two wells have been drilled shortly.

Incremental will earn its equity through its 8.75% ‘use or lose’ Decree 20 exploration royalty generated from its 50,000 barrel per month Selmo Oilfield in Turkey.

Following the farm-in, interest holders in the licence will be Ottoman 65%, Incremental 15%, Merty Energy and Petraco (joint operators – 10% each).

The two exploration wells – Ottoman’s first in Turkey – are called Bati Umur-1 and Arpaci-1 and are about 20km from potential gas markets in and around the city of Edirne.

The reservoir targets are less than 800 metres with multiple pay zones potentially present, which will allow for cost-effective drilling and rapid development upon success, according to Ottoman managing director Jaap Poll.

The wells will test two of four potential targets identified by a 142km seismic survey over existing structural leads. Bati Umur-1 and Arpaci-1 were prioritised after geochemical anomalies and direct hydrocarbon indicators were found over three of the four targets.

Each of the shortlisted targets constitutes a potential small gas field. The fields are close to each other, allowing for a central treatment plant and 20km pipeline to Edirne city, which will ease costing. The plant and pipeline will cost about $US3 million.

Poll said local gas markets had developed around Edirne, and Ottoman had several options for selling-on its product.

“The industries and businesses in and around Edirne now use fuel oil or electricity and also the city is going to be reticulated – the company who won the contract to reticulate the city is obligated to source its gas from three different suppliers … and we are the closest local supplier, putting us in a powerful position,” Poll said.

“There is no shortage of market – it becomes a matter of negotiating the best possible price.”

Poll said the current gas price of about $US6 per thousand cubic feet would allow strong margins and Incremental would bring useful capital and expertise to the venture.

“Incremental has recently acquired full ownership and operational control of the Selmo oilfield - the second largest oilfield in Turkey by cumulative production,” Ottoman managing director Jaap Poll said.

“As such, Incremental will bring oilfield expertise and a wealth of local knowledge to the joint venture.

“Upon success in Bati Umur-1 and/or Arpaci-1, the joint venture will step up its exploration and appraisal programs aiming towards early development of any discoveries. The Incremental farm-in will be aimed primarily at further drilling and seismic surveys on other exploration targets on the licence.”

Poll expects each of the potential gas fields will have on average 2-5 billion cubic feet which would give each field a net present value of about $US10 million stretched over about five years.

If the commercial quantities of gas are present, Ottoman will start follow-up seismic 2D and 3D surveys, appraisal drilling and gas marketing reviews to achieve early cash flow.