ConocoPhillips has issued a buy-out notice to acquire 3D Energi's 20% interest in the VIC/P79 exploration permit offshore south-east Australia. This process was initiated after 3D Energi failed to meet cash calls related to the drilling of the Charlemont and Essington gas discoveries within the permit.

Buy-Out Process and Joint Venture Context

The joint operating agreement stipulates a period to agree on a "fair market value" for the transaction or to obtain an expert valuation. Following this, ConocoPhillips will have 30 days to exercise its buy-out right. If it does not, the joint venture may pursue other default remedies, including potentially diluting 3D Energi's participation interest. The joint venture consists of ConocoPhillips (51%), Korea National Oil Corporation (29%), and 3D Energi (20%).

Strategic Rationale and Discoveries

ConocoPhillips stated the proposed increased interest aims to advance the recent natural gas discovery towards potential development, subject to commercial viability. It emphasized the Otway basin's strategic role in supporting energy security for Australia's southern states, where production declines and shortfalls are forecast. The Charlemont-1 and Essington-1 wells, drilled last year, both yielded gas discoveries.

3D Energi's Financial Default and Ongoing Actions

3D Energi's inability to meet cash calls stemmed from costs "materially higher" than pre-drill estimates. A series of default notices were issued:

• An outstanding balance of US$2.5 million from a total of US$5.3 million was due by 6 February.
• A second notice followed on 10 February after the full estimated amount of US$7.7 million was not paid.
• A revised amount of US$4.8 million was then due by 8 March.

3D Energi's shares have been in a trading halt since late January, and the company is obtaining advice on the validity of the default and buy-out notices.

Exploration Programme and Forward Plans

The Otway exploration drilling programme was planned in two phases: an initial phase of up to six wells in VIC/P79, followed by an optional second phase of up to four wells in the T/49P permit. The joint venture is advancing regulatory work for a Declaration of Location for the discoveries, a step towards applying for a retention lease or production licence. Evaluation of phase one drilling is ongoing, with a Charlemont-2 exploration well considered for phase two. Last December, 3D Energi conducted a share placement raising A$14.5 million.