Empire Oil & Gas has struck a deal to buy major shareholder ERM Power's WA gas assets for $16 million.
The agreement will give Empire control of the largest acreage package in the Perth Basin.
Under the deal, ERM Power will take part in a recapitalisation of Empire for up to $7.5 million to increase its interest in Empire to 19.99 per cent.
It has also agreed to commit to underwrite a portion of the rights issue under certain conditions.
The assets are ERM Power's interests in eight exploration permits in the Perth Basin, covering more than 12,000 square kilometres.
Empire chief executive Ken Aitken said that by taking full ownership of the tenements, Empire would be much better placed to unlock the potentially immense value of the basin for shareholders.
"This deal will deliver Empire 100 per cent ownership and revenue of our cornerstone production asset, Red Gully, and the largest prospective oil and gas acreage holding in the Perth Basin," Mr Aitken said.
ERM Power chief executive Philip St Baker said the transaction would allow ERM Power to focus on its electricity retailing and generation business.
"We believe these assets have strong commercial potential, enhanced by their proximity to Perth, and that Empire has the management experience and expertise to develop them," Mr St Baker said.
Empire's share price was up 0.3 cents to 1 cent at 8.41am. ERM Power was up 3 cents to $1.95.