Armour Energy’s plans to develop its unconventional acreage in the Northern Territory’s McArthur Basin have been given a massive boost after it announced a $100 million farm-in agreement with American Energy Partners.

Armour revealed details of a non-binding letter of intent (LOI) signed with American Energy, whereby the pair will further the exploration and development of Armour’s extensive oil and gas prone McArthur Basin Project.

Under the LOI, the companies will work toward execution of definitive agreements within three months, subject to up to three extensions of up to three months each, at American Energy’s election upon payment of $250,000 in cash to Armour for each extension.

American Energy, which was founded by former Chesapeake Energy head Aubrey McClendon, will farm-in to granted and pending tenements in the NT owned by Armour covering about 21.5 million acres, or the northern part of Armour’s dominant northern and central McArthur Basin tenement position.

Under the LOI, American Energy will carry 100% of Armour’s share of expenditure during a single phase work program of$100million, following which the parties will form a joint venture.

In addition, American Energy will pay Armour $11 million in cash upon closing of the transaction and a further $7 million upon the earlier of the grant of production licenses over at least 1 million acres, or grant and transfer of interests in pending tenements.

Armour Energy Chief Executive Robbert de Weijer said the company was excited to be entering into a partnership with one of the world’s “most capable companies.”

“We are looking forward to seeing a substantial lift in investment and activity levels in the McArthur Basin, on terms which represent very attractive value for Armour’s shareholders,” he said. “This transaction is a major milestone in the development of our company.”

Armour’s executive chairman Nick Mather added, “The American Energy team built Chesapeake Energy, now a household name in the U.S. oil and gas industry, and I fully expect American Energy to apply the same effort to the McArthur and deliver the technical outcomes for which they are renowned.”

The farm-in deal comes in the wake of reports McClendon was eyeing Australia’s McArthur Basin as a shale hotspot for his first venture out of the United States.

Brisbane-based Armour Energy holds one of the largest acreage positions in the McArthur Basin at 34 million acres, an area the size of England.

Armour’s Mather recently told delegates at the DUG Australia conference that the company had spent more than $65 million proving up its shale oil and gas resources.

“We’ve had six discoveries in our first seven wells in northern Australia,” he said.

Mather said the proposed development of a pipeline linking the Northern Territory to the eastern states gas market would bode well for future commercialization of its resources, but stressed successful project development was not contingent on the pipeline going ahead.

Armour’s shares enjoyed a stellar run on the local bourse as investors welcomed the farm-in deal. The company jumped 53.2% to 7.2 cents.

Lauren Barrett can be reached at lbarrett@hartenergy.com.