The U.S. energy behemoth ExxonMobil Corporation (XOM) entered into a deal with an affiliate of Impact Oil & Gas Ltd. for the exploration for oil, off the coast of South Africa.
Per the agreement, ExxonMobil − the world's largest publicly traded oil company by market value − will take over a 75% stake in the Tugela South Exploration Right from Impact. This will enable the company to become the operator of the stake while gaining rights to start exploring around 2.8 million acres off Durban on the east coast, in water depths ranging from the shore to 6,800 feet.
The deal also gives ExxonMobil the option for a 75% stake in three more offshore areas. Collectively, it covers 16 million acres in water depths from the shoreline up to 9800 feet.
Again, the company also has a technical cooperation permit with the South African government to study the hydrocarbon bearing potential of the deepwater Durban Basin for a year. The area spans around 12.4 million acres off Durban. This permit lasts a year following which ExxonMobil can seek for approval to explore the area.
London-based Impact holds one of the largest acres off the South African coast and this move underlines the region’s potential to supply oil and gas markets worldwide. According to Oil and Gas Journal, South Africa had proven oil reserves of 15 million barrels as of January 2011. These are mainly concentrated in offshore southern South Africa in the Bredasdorp basin and off the west coast near the border with Namibia, as per the U.S. Energy Information Administration (EIA).
In recent times, ExxonMobil has been experiencing disappointing production levels, which decreased for five quarters in a row. Its third quarter 2012 production level decreased 7.5% year over year. Hence, this move of expanding its foothold in South Africa will likely be beneficial for the supermajor as other energy biggies like Royal Dutch Shell Plc (RDS.A) and Anadarko Petroleum Corp. (APC) are eyeing this South African region.
ExxonMobil shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.