Exxon Mobil Corp. (XOM:US), the biggest U.S. oil company, will begin exploring off the coast of South Africa after it agreed to buy a 75 percent stake in blocks owned by Impact Oil & Gas Ltd.
Exxon will control operations in the area it’s acquiring in the Tugela South Exploration Right from closely held Impact, according to a statement from the Irving, Texas-based company today. Terms weren’t disclosed for the acquisition, which includes the right to buy a 75 percent stake in three other offshore areas Impact has permits to study.
Exxon has been facing production declines (XOM:US) as discoveries from past decades falter and governments in the Middle East and Latin America prohibit exploration by foreign businesses or make it too expensive. The company is turning to South Africa, which has become one of Africa’s hottest attractions for energy producers such as Royal Dutch Shell Plc (RDSA) and Anadarko Petroleum Corp. (APC:US)
“South Africa is one of the new areas offshore that there seems to be growing interest in,” Brian Youngberg, an analyst at Edward Jones in St. Louis, said in a telephone interview. “Thoughts have been that South Africa is probably an uptapped market that could really see production grow in coming years.”
Exxon doesn’t have any existing operations in South Africa and will explore for oil and natural gas, Patrick McGinn, a company spokesman, said in e-mailed responses to questions today. Information on the cost and schedule of Exxon’s exploration program is considered confidential, he said.
The Tugela South Exploration Right covers 2.8 million acres near Durban off the east coast of South Africa, in water depths of as much as 6,500 feet (2,000 meters). The additional exploration rights cover 16 million offshore acres.
Impact, based in London, has one of the largest holdings off the South African coast by a closely held company, according to its website.
“We believe South Africa has significant potential and we will continue to look for additional opportunities there,” Stephen Greenlee, president of Exxon’s exploration company, said in the statement.
Separately, the company also got a permit from the South African government to study the potential of the deep-water Durban Basin, covering about 12.4 million acres. Exxon has exclusive rights to study the area for a year and can seek a permit if it wants to explore further.
Last month, The Hague-based Shell said it was collecting seismic data in the Orange Basin off the north-west coast of South Africa. The company may make a decision on drilling in the next year or so. Anadarko, based in The Woodlands, Texas, has interests in about 24 million gross acres off western South Africa, according to a company presentation.
Exxon is lagging behind rivals in finding new energy sources. It found enough oil and gas last year to replace 107 percent of what it pumped from wells, a so-called reserve- replacement ratio that was less than one-third that of OAO Rosneft, data compiled by Bloomberg show. Exxon formed a partnership with Russia’s Rosneft last year to increase its access to resources in the Arctic and Black Sea region.
Exxon, in a report earlier this month, raised its long-term global energy-demand growth estimate to 35 percent from 32 percent as expanding populations in Africa and India use more electricity.
The company remains growth-challenged given its size and scale, and it’s hard for Exxon to find new areas that can “really move the needle,” said Youngberg, who has a hold rating on Exxon shares and doesn’t own any. If South African exploration is successful, production may come online near the end of the decade, he said.
“They have the cash flow to explore numerous areas around the world on an ongoing basis in order to hopefully find some new production that could help them over time,” Youngberg said.
Exxon rose (XOM:US) 0.9 percent to $88.87 at the close in New York.
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