Esso PNG Exploration Ltd (Esso), a subsidiary of ExxonMobil Corporation (XOM) and Australian company Oil Search have inked a $15 million contract with New Guinea Energy Ltd. to jointly acquire a Papua New Guinea exploration license.
ExxonMobil and Australian company Oil Search will both hold a 50% interest in the Petroleum Prospecting License (PPL) 277 and will be liable to pay $7.5 million each. The agreement is contingent on receipt of the next extension of PPL 277 and other necessary government approvals.
Further, New Guinea Energy may be entitled to an additional $20 million–both partners contributing equally, if a Petroleum Development License (PDL) is granted and will receive a royalty over all revenues if commercial production takes place. The value of the royalty may range between $48 million and $312 million subject to the size of discovery, its commercial feasibility, pricing and other factors.
PPL 227 is situated in the Papua New Guinea Highlands, adjacent to Petroleum Retention License 11, which holds the Trapia prospect and PDL 8, which holds the Angore gas field. The license is one of the six permits that New Guinea Energy holds in the Western Province.
ExxonMobil’s subsidiary has just started drilling the Trapia-1 well, which is near the llicense and the first investigation, will commence around the first half of 2012.
Per New Guinea Energy, the well would target the Trapia structure as it could overlap into the PPL 227, located on the border of PPL 277 and PRL 11.
The permit has high potential for gas and will allow Exxon to expand in this region, given its favorable location.
ExxonMobil holds a Zacks # 3 Rank, which translates to a Hold rating for a period of one to three months. For the long term, we maintain our Neutral recommendation. The company also faces tough competition from its competitors Chevron Corporation (CVX) and BP Plc (BP).
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