Hess – Toreador to Tap Paris Basin – Analyst Blog

Hess Corporation (HES) has signed a deal with Toreador Resources Corporation (TRGL) under which it may become a co-holder of Toreador’s exploration permits in the Paris Basin, France. The Paris Basin represents approximately 1 million gross acres (of which 680,000 acres have been awarded and 360,000 acres are pending), which is a potentially big resource of shale oil.

 

As per the deal, Hess will make a $15 million upfront payment and invest up to $120 million for a two-phase work program. Phase 1 (expected to last 30 months) comprises acreage evaluation and drilling of six wells, with the first well planned for late 2010. The results of Phase 1 will lead to Phase 2, which will comprise appraisal and development activities. Hess will then assume a 50% interest in Toreador’s Paris Basin acreage. However, the deal is subject to approval from the French Government.

 

We believe Hess’ status as the second-largest acreage holder in the Bakken Shale play represents a strategic advantage in the development of the Paris Basin. For its oil production in the Paris Basin, Hess will employ the same technology that it uses in the U.S. unconventional plays. This is a prudent step for Hess as it will lead to significant opportunities for future growth in France. However, we also believe that the 30-month timeframe for the first six wells will not be a near-term earnings or net asset value driver for Hess.