Southern Energy (AIM:SOUC) shares rose 6.7%, closing Tuesday's session at 4p, after the signing of a joint-venture agreement to test the Cotton Valley oil prospect.
It sees the new partner funding US$1.95m to earn a 50% working interest in each of two commitment wells.
The agreement carries a minimum drilling commitment of two wells and is intended to reduce Southern's capital exposure on the early test wells while proving the resource at multiple locations.
Under the deal, the partner will fund US$1.95 million of drilling and completion capital to earn a 50% working interest in each commitment well.
Southern will fund the remaining 50% to retain operatorship, and the partner retains a 5% working interest participation right in each follow‑up Cotton Valley well on established spacing units.
It has secured a drilling rig, and expects to spud the Terrible Creek 21‑2 #2 in late July with permitting and lease construction beginning in late May.
The board noted that it has approved Southern funding 50% of the gross US$3.9 million drill and completion cost for the first well, and the second well is likely in Q4 2026 following first‑well results.
The JV follows Southern's February financing, which included issuance of US$17.0 million in 2026 Debentures, a CAD2.1 million equity placement and a US$5.0 million sale of a 6% gross overriding royalty that generated aggregate net proceeds of approximately US$22.0 million and enabled retirement of its senior credit facility.
"The retirement of our senior Credit Facility and the establishment of a simplified, more flexible capital structure have significantly enhanced our liquidity profile and reduced financing costs," said Ian Atkinson, President and Chief Executive Officer.
The next operational milestone is the planned spud of the first commitment well in late July.
