Red Sky Energy (ASX:ROG) is on the fast track towards positive cash flow after the South Australian Ministry of Energy and Mining approved the transfer of the Killanoola petroleum retention licence that it had acquired from Beach Energy (ASX:BPT).

While the field has no current output, it is home to two abandoned shut-in wells, the first of which has proven oil production capacity.

Killanoola-1-DW1, was first drilled in 1998 and produced 300 barrels of oil per day before declining quickly as a result of the waxy nature of the crude oil.

Red Sky says it will now investigate recovery techniques to recover production from this field, including heating the well to allow the oil to flow more readily to the surface – as is commonly done in North America for oil with waxy attributes.

The company believes this is the method that would provide the quickest way to positive cash flow.

The Killanoola oil field is estimated to have around 7 million barrels of oil – with Red Energy announcing that it could recover 40% or 2.8 million barrels by using modern enhanced oil recovery (EOR) techniques to achieve stable production over the longer term.

Red Sky had raised $4.3 million in capital though a share placement in January to fund the Killanoola project.

The Red Sky share price jumped by as high as 33 per cent to 0.4c today, before retreating to the current price of 0.35c.


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Killanoola acquisition

The licence transfer is the final outcome of a deal struck in November between Red Sky and Beach, under which Red Sky would purchase the retention licence from Beach for $1.

The agreement involved Red Energy taking over all obligations and liabilities, as well as any restoration work required on the Killanoola oil field.

Red Sky’s CEO and Managing Director, Andrew Knox, said,

“The Company is extremely pleased that the acquisition is finalised and thank both Beach and the Ministry for the expeditious manner in which the transaction was completed.”

“Red Sky is fully funded following the combined success of our recent rights issue and placements, debt free and is moving to effect our work programme and provide production for the Company”, he added.