Dubai-based oil and gas exploration firm Dragon Oil PLC will get a significant participating interest in Service Contract 63 (SC 63), after securing a farm-out agreement with Nido Petroleum Philippines Ltd., the local unit of Australian firm Nido Petroleum Ltd., which holds a stake in the contract.
“Under the terms of the agreement, the farm-out will be completed as a two-stage process, with Dragon Oil initially acquiring a 40-percent participating interest in SC 63 from Nido’s current 50-percent participating interest in Service Contract 63,” Nido informed the Australian Securities Exchange.
To earn its 40-percent interest from Nido, Dragon Oil will pay 56 percent of the cost of the Baragatan-1 exploration well, which is part of the SC 63, based on a $25-million cost cap (dry-hole).
Upon the approval of the Department of Energy, Dragon Oil will reimburse $2.18 million of past seismic costs and $1.22 million of other past costs on a success case basis toward development expenditure.
The second stage of the farm-out, on the other hand, is still subject to certain conditions. This involves securing government approvals, which will allow PNOC-Exploration Corp. (PNOC-EC) the opportunity to divest a proportion of its participating interest in SC 63.
“Assuming the relevant conditions are satisfied and approvals are secured for the second stage of the process, Nido will seek to secure an additional net 10-percent participating interest in SC 63 from PNOC-EC on the same terms agreed between Nido and Dragon Oil,” Nido further said.
Nido will then have a 20-percent working interest in SC 63 and will then contribute $2 million for the cost of the Baragatan well, which is based on the $25-million dry hole cost cap.
During the Baragatan-1 drilling operations, which will be in the first half of this year, Nido will remain as technical operator and PNOC-EC as operator of the service contract. By that time, Dragon Oil will be second entity to the drilling team, and will be responsible for overall drilling management. Following the drilling of the Baragatan-1 well, Dragon Oil will have the right to become operator of the service contract.
“Dragon Oil brings a wealth of exploration, development and operating experience to the SC 63 joint venture through their expanding portfolio, in particular through their world class Turkmenistan producing asset,” Nido Managing Director Phil Byrne, said.
“I look forward to working with Dragon Oil in SC 63 as Nido Petroleum moves ahead with its plans to drill at least four exploration wells in its Philippine and Indonesian acreage in 2014,” he added.