ExxonMobil Corporation (XOM) and Statoil ASA (STO) have reached an agreement with the US government to advance with the development of Julia field, an oil prospect in the Gulf of Mexico.
Both the companies together hold five leases in the field, located around 250 miles southwest of New Orleans, with a 50% interest each. Three of the five leases were signed in 1998 while the other two were leased in 2003.
The conflict commenced in October 2008, when ExxonMobil made an application for lease extensions. Subsequently, the Interior Department cancelled three of five leases stating that ExxonMobil and Statoil failed to draw a plan to begin oil production. Subsequently, ExxonMobil and Statoil filed a suit against the government after several of their appeals were ignored.
Under the settlement, the two companies will initiate development of their leases in a phased manner with an aim to start production by June 2016. They are also liable to pay royalty at an increased rate to the US Treasury as well as construct and set up an offshore platform.
If ExxonMobil and Statoil had lost the lawsuit, the leases would have gone back to the custody of the government. The settlement will enable the companies to swiftly develop the large and challenging resource.
ExxonMobil and Statoil have already expended over $300 million on drilling two wells on the Julia prospect and have further plans to drill three to six wells with estimated production in excess of 175 million barrels of oil from these six wells in its first phase. Thereafter, the companies intend to link them to a planned production facility operated by Chevron Corporation (CVX) situated nearly eight miles away.
ExxonMobil and Statoil both hold a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on both companies.
CHEVRON CORP (CVX): Free Stock Analysis Report
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EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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