Central Petroleum shares have risen more than 11 per cent after the Perth company announced a $150 million joint venture with oil and gas producer Santos.
The deal means the two companies will explore and potentially develop up to 13 areas in the Amadeus and Pedirka Basins in central Australia.
Santos will fund exploration by investing $30 million, with options to invest a further $60 million in stage two and a further $60 million in stage three.
Central Petroleum chief executive Richard Cottee said the agreement solved the financial tsunami which was about to hit his company and showed the two parties shared the same vision on unconventional acreage.
"Å“The first lot of vision was in CSG (coal-seam gas) and now it's in the shales and I find some comfort that my reign of terror at Central is commencing with a company of the stature of Santos," Mr Cottee told a briefing on Tuesday.
He said the deal showed the value of the acreage, including the urgent need to develop the southern Georgina and the Amadeus Basin areas.
Mr Cottee took up the position as chief executive at conflict-ridden Central Petroleum in May.
Under the new agreement Santos will earn rights to up to 70 per cent of the Amadeus and Pedirka Basins, with rights to assume operatorship of the fields during exploration if they are developed.
Central will retain a 100 per cent interest in more than two million acres in the Amadeus Basin including the area around the Surprise discovery and at least a 30 per cent interest of the permits/applications.
The deal is conditional on various regulatory approvals, including renewal or extension of permits.
Santos Vice President of Eastern Australia James Baulderstone said the proximity of the Amadeus and Pedirka Basins to existing infrastructure presented an opportunity for his company to develop gas resources on a commercial scale.
Pattersons oil and gas analyst Alexis Clark said the deal was a positive development as Central was looking to de-risk its acreage
Central Petroleum closed up three cents, or 22.22 per cent, at 16.5 cents. Santos was up 27 cents, or 2.4 per cent, at $11.55.