Norwegian oil major Statoil ASA (STO) is about to venture into Australian shale gas exploration through a farm-in deal with Toronto-listed energy company Petrofrontier Corp.
Statoil has purchased interests in Petrofrontier’s four existing Exploration Permits (:EP) — 103, 104, 127 and 128 — as well as the pending exploration permits — 213 and 252 — in South Georgina Basin in Australia’s Northern Territories in the joint venture project.
Statoil believes its access to the immature acreage of 13 million holds immense potential at low cost but high risk. These are in sync with its strategy of acquiring assets at an early stage at a low cost and build them up into potentially high value assets.
Per the exploration program, the partners plan to spud up to 10–20 wells, in three phases by 2017, to prove the potential of the licenses. The first phase of the program will be operated by Petrofrontier. Statoil, however, holds options to operate from the second exploration phase and boost ownership stakes to 65% from 25% of Petrofrontier's holding.
Both parties have allocated $25 million each for the first phase of the exploration program. Depending on the outcome of the exploration, this figure could further spiral to $200 million through phase two and three.
If the partners progress with the second phase, Statoil will commit $80 million while Petrofrontier will put in $20 million. In addition, Statoil’s holding will increase by 25%.
Presuming, the partners move ahead with the third phase as well, Statoil will throw in all the necessary $80 million. This will boost Statoil’s holding by 15%, taking its total holding to 65%. With the completion of all the three phases, the partners would split expenses on the basis of their holdings.
Statoil, which faces competition from Eni SpA (E), holds a Zacks #3 Rank, equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.
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