Red Sky Energy Ltd Partnership Delivers Major Santos Development Milestone

Red Sky Energy Secures Major Development Milestone with Santos Partnership

Red Sky Energy has executed a binding Authority for Expenditure (AFE) with major operator Santos Limited, securing the company's 20% working interest in a two-well development program at the producing Yarrow gas field. The announcement marks a significant step forward for Red Sky, providing exposure to incremental production growth within an established field environment that benefits from existing Santos-operated infrastructure, gas gathering systems, and processing facilities.

The program represents the next phase of development within the established Innamincka Dome gas system, with drilling expected to commence imminently and a clear pathway to near-term production and cash flow. Furthermore, the partnership with Red Sky Energy Ltd demonstrates the company's strategic positioning in a proven gas-producing region of the Cooper Basin.

Strong Foundation: Yarrow 1 Delivers Above Expectations

The current development program builds on the exceptional performance of Yarrow 1, which was successfully tied in and brought online in November 2025. However, the well has delivered production results that significantly exceeded initial expectations.

The well underwent a two-stage hydraulic fracture stimulation across the Patchawarra and Tirrawarra formations. This validated the re-entry and stimulation strategy whilst demonstrating the capacity to unlock additional value from discovered resources tied into existing infrastructure.

Management Commentary

"This is a key step for Red Sky. We have executed the Yarrow AFE alongside Santos and secured our position in the next phase of development within a producing gas system. These wells sit within existing infrastructure and provide a direct pathway to near-term production and cash flow." – Andrew Knox, Managing Director

Proven Cash Generation from Existing Assets

The partnership with Red Sky Energy Ltd continues to demonstrate strong financial performance through the consistent output of Yarrow 3. In addition, the well has generated reliable cash flow since production commenced in August 2023.

Yarrow 3 Financial Performance

The well's performance metrics showcase consistent deliverability:

• Total cash receipts: $5.5 million since August 2023
• December 2025 quarter receipts: $0.63 million
• Revenue sources: Natural gas sales (primary), LPG and condensate (supplementary)

The well continues to deliver steady production and provides a stable operating cash flow base. Moreover, this consistent deliverability underpins Red Sky's funding capacity for further development.

What is an Authority for Expenditure (AFE)?

An Authority for Expenditure (AFE) is a formal agreement between joint venture partners that authorises specific exploration or development activities. Furthermore, it commits each party to fund their proportionate share of the costs.

Why AFEs Matter to Investors

An AFE provides several critical benefits that make it an important milestone for resource companies:

• Legal commitment from all partners to proceed with development, ensuring project continuity
• Clear cost allocation based on working interest percentages, providing certainty on financial exposure
• Secured participation in profitable development programs without dilution risk
• Operator confidence signal – typically indicates high confidence in project economics from major operators

In Red Sky's case, the binding AFE with Santos ensures the company maintains its 20% working interest in the Yarrow field expansion. However, it also benefits from Santos' operational expertise and established infrastructure. This arrangement provides Red Sky with exposure to a high-quality development program without the operational complexities of field management.

Strategic Infrastructure Advantage

The Innamincka Dome represents a highly advantageous operating environment for the partnership with Red Sky Energy Ltd. For instance, it offers several key benefits that minimise development risk and accelerate time to production.

Infrastructure Benefits

The development environment provides significant advantages:

• Established Santos-operated infrastructure – reduces development costs and operational complexity
• Gas gathering and processing facilities – immediate tie-in capability for new wells
• Proximity to existing production – proven commercial viability and operational systems
• Proven commercial gas accumulations – de-risked development environment with established reserves

Red Sky holds a 20% working interest across six Production Retention Licences (PRLs 14, 17, 18, 180, 181, and 182) within the Santos-operated Innamincka Dome Joint Venture. This provides exposure to a proven gas-producing region of the Cooper Basin.

The presence of existing infrastructure significantly reduces the time and capital required to bring new wells into production. Unlike greenfield developments that require extensive infrastructure construction, the Yarrow program can leverage established gas gathering systems and processing facilities operated by Santos.

Clear Funding Pathway Established

Red Sky has secured a structured approach to funding its participation in the two-well program through a combination of placement and rights issue. This demonstrates management's confidence in the project whilst providing existing shareholders with participation rights.

The placement provides initial funding, whilst the Rights Issue will cover the remainder of Red Sky's AFE commitment. Moreover, the structured funding arrangement ensures Red Sky can meet its obligations under the AFE without compromising its working interest position or requiring additional equity partners.

Future Development Timeline and Catalysts

The partnership with Red Sky Energy Ltd is well-positioned for near-term value creation with several upcoming milestones. Furthermore, these could drive share price appreciation across multiple timeframes.

Immediate Catalysts

1. Imminent drilling commencement – First Yarrow development well expected to start immediately
2. Production tie-in – Leveraging existing infrastructure for rapid cash flow generation
3. Rights Issue completion – Securing remaining funding for second well participation

Medium-Term Development

• Further development drilling anticipated during 2026 within the broader producing fairway
• 3D seismic interpretation completed across PRLs 14 and 17 to inform future development planning
• Incremental production growth from established field environment with proven reserves

The completed interpretation of 3D seismic data across the project area provides a technical foundation. However, it also enables identifying additional drilling targets and optimising well placement within the existing infrastructure network.

Why Should Investors Pay Attention to Red Sky Energy?

Red Sky Energy presents a compelling investment opportunity centred on low-cost, short-cycle development within an established producing gas system. In addition, the company's strategy of targeting development tied into existing infrastructure minimises capital requirements whilst accelerating time to cash flow.

Key Investment Highlights

The partnership with Red Sky Energy Ltd offers several compelling factors:

• Proven operator partnership with Santos Limited in established gas region providing operational expertise
• Exceeding production expectations – Yarrow 1 delivered 50% above AFE estimates, validating geological models
• Stable cash generation – Yarrow 3 has generated $5.5 million since production began in August 2023
• Infrastructure advantage – Immediate tie-in capability reduces development risk and capital requirements
• Clear funding pathway – Placement and Rights Issue structured to fund full participation in development program

The execution of the binding AFE represents a significant milestone that secures Red Sky's position. Furthermore, it provides direct exposure to near-term production and cash flow generation within a producing gas field.

Risk Mitigation Factors

The partnership with Red Sky Energy Ltd benefits from several factors that reduce typical exploration and development risks:

• Established production environment with proven reserves and commercial viability
• Santos operational expertise reducing execution risk through experienced field management
• Existing infrastructure eliminating the need for major capital expenditure on processing facilities
• Proven well performance from Yarrow 1 validating technical approach and geological understanding

Investment Outlook and Final Thoughts

Red Sky Energy has demonstrated its ability to deliver operational success within established producing systems whilst maintaining a disciplined approach to capital allocation. However, the company's strategic positioning within the Santos-operated Innamincka Dome provides access to proven infrastructure and operational expertise, significantly de-risking future development activities.

The combination of exceeded production expectations from Yarrow 1, stable cash generation from Yarrow 3, and strategic infrastructure positioning creates a compelling investment narrative. Moreover, the immediate drilling program provides near-term catalysts for value creation, whilst the broader Innamincka Dome position offers medium-term expansion potential.

The binding AFE execution represents more than just operational progress – it demonstrates Red Sky's ability to secure participation in quality development programs alongside major operators. With drilling expected to commence imminently and established infrastructure providing a clear path to production, the partnership with Red Sky Energy Ltd offers investors exposure to near-term catalysts within a proven producing environment.

Red Sky Energy has secured its position in a high-quality development program with major operator Santos, providing exposure to near-term production growth within an established gas system. With proven cash generation from existing assets and a clear funding pathway, the company is well-positioned to capitalise on the infrastructure advantages of the Innamincka Dome. Investors should monitor upcoming drilling results and production performance as key value drivers.

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