Baron Oil has signed a convertible loan agreement with InfraStrata for the Islandmagee gas storage project in Northern Ireland.

The deal will see Baron provide a secured loan of €1.8m to InfraStrata with an option to convert the balance into an equity participation of 15% in Islandmagee Storage, a subsidiary of InfraStrata.

The loan is repayable by 1 May 2016 with an option to extend until 31 December of that year. It will provide bridge financing for the drilling of the Islandmagee gas storage project salt appraisal well.

InfraStrata will use the loan as working capital to bridge the receipt of the agreed European Commission grant, 70% of which will be received after completion of this year’s work programme.

The work programme includes drilling a well to secure salt cores and complee the testing and engineering design work. Drilling is expected to start this month on the Islandmagee salt appraisal well.

Islandmagee Storage owns the planned 500 million cubic metre natural gas storage project located next to the Ballylumford gas fired power station in Northern Ireland.

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Baron and InfraStrata have also started negotiations on a possible participation by Baron in the forthcoming Woodburn Forest-1 well in Petroleum Licence PL1/10 in Northern Ireland.

Baron Oil CEO Bill Colvin said: " If the appraisal well does not subsequently lead to a successful realisation of value of the Islandmagee project, the shareholders of Baron will recover all their invested capital from the EU grant plus an 8% interest payment."