Exoma Energy Extends CNOOC Partnership

Exoma Energy (EXE.AX) has announced a substantial extension of its partnership with global major CNOOC. In addition to extending its existing farm-in agreement, CNOOC will take a 13% equity stake in Exoma, extendable to 19.9%. The deal provides Exoma with A$10.7m of direct new funding and $12.7m of further work programme funding. The extension of CNOOC's commitment signals continuing confidence in the plausibility and materiality of Exoma's Galilee and Eromanga Basin acreage.

Two-tiered CNOOC commitment highly symbolic
In addition to extending its existing farm-in and funding carry of Exoma, CNOOC and Exoma have agreed for CNOOC to take a cornerstone equity stake in Exoma. As well as the parameters of the deal providing two fresh sets of benchmark metrics, consummation represents further endorsement of a relationship that continues to strengthen and is clearly in very good corporate health.

Work programme reigned-in
As operator of the JV’s permits, Exoma has also announced the JV’s decision to significantly reduce its 2012 work programme while it analyses results from the drilling programme to date and considers its forward strategy. With generally disappointing results from its CSG targets, we expect the JV to refocus towards conventional oil and appraising the Toolebuc shale which is known to stretch across 39,000km2 (9.6 million acres) of the JVs granted and contingent permit areas.

Options and overhang nearly gone
Exoma has a substantial parcel of 180m A10cps share options on issue, which expire on 30 September. With potentially A$18m of new funding at stake, the options were shaping as a defining event in determining Exoma’s forward funding profile. Although Exoma would undoubtedly welcome any buffer that option conversions would still provide, with CNOOC having extended its funding support, potential option monies are now much less material to Exoma’s funding outlook.

Valuation thesis unchanged
Our valuation thesis remains unchanged from our initiation report published on 6 August. The news since of an unsuccessful result from the potentially defining Katherine West well has nullified what would otherwise have served as a firm NAV catalyst. Based on the deal metrics that fall from the new CNOOC arrangements, we infer a midpoint valuation of A$0.15 per share.

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