Dragon Oil plc (Ticker: DGO), an international oil and gas exploration, development and production company, announces that it has signed a farm-in agreement with Nido Petroleum Philippines Limited (ASX: NDO) ("Nido") for Service Contract 63 (SC 63) NW Palawan Basin, offshore the Philippines.
Under the terms of the agreement, the farm-in will be completed as a two-stage process, with Dragon Oil initially acquiring a 40% participating interest in SC 63 from Nido's current 50% participating interest in the Service Contract, and is subject to normal Philippine government approvals. The Philippine National Oil Company - Exploration Corporation (PNOC-EC) will continue to have a 50% participating interest.
The second stage is subject to certain conditions being met and additional Philippine government approvals being received. In this stage, Nido will seek to secure an additional net 10% participating interest in SC 63 from PNOC-EC on the same terms agreed between Nido and Dragon Oil. Nido will then have a 20% working interest in SC 63. Dragon Oil has the option to acquire an additional 10% participating interest from PNOC-EC on the same terms and conditions agreed between Nido and Dragon Oil.
Under the terms of the farm-in agreement, Dragon Oil would reimburse Nido US$2.18 million in consideration of past seismic costs and pay 56% of the costs of drilling the Baragatan-1 well to earn a 40% participating interest level. The carry on the well cost is capped at US$25 million (100% basis); well costs over and above this level will be shared by the parties in proportion to their participating interest. Should the various conditions and approvals required for the second phase be satisfied, and Dragon Oil exercises its option, Dragon Oil would pay a pro-rata higher amount to earn a further 10% interest.
SC 63 covers an area of 10,560 km² and is currently in Sub-Phase 2b of the exploration programme, in which there is a commitment to drill one well. 754 km² of 3D seismic were shot in a previous exploration phase, leading to the identification of the Baragatan prospect as the drilling target for the commitment well. This prospect lies in c. 50 metre water depth and is anticipated to be drilled to a depth of 3,390 metres. The primary reservoir objective for the Baragatan-1 exploration well is the sandstones of the Miocene Pagasa Formation.
During the Baragatan-1 drilling operations Nido will remain Technical Operator and Dragon Oil will second personnel to the drilling team and will be responsible for overall drilling management; PNOC-EC will continue to be Operator of the Service Contract. Following the drilling of the Baragatan-1 well, Dragon Oil will have the right to become Operator of the Service Contract.
Dr Abdul Jaleel Al Khalifa, Chief Executive Officer, Dragon Oil plc, commented:
"I am pleased to announce a farm-in agreement with Nido for an offshore block Service Contract 63. We look forward to working with Nido and PNOC-EC in this exploration venture in the Philippines.
"We have been looking into exploration opportunities in South-East Asia for a while and with this farm-in agreement, yet another asset is added to our portfolio. We have the financial resources, technical expertise and management talent to deliver on our diversification strategy as we continue the search for the right-fit exploration and development assets."