Dominion Petroleum shares soar on Abu Dhabi farm-out deal for Tanzania asset

East Africa focused oil and gas firm Dominion Petroleum (LON:DPL) this afternoon announced a long awaited farm-out deal for the deepwater Block 7 offshore Tanzania.

It has agreed to sell a 20 per cent stake in Block 7 to Abu Dhabi firm Mubadala Oil & Gas in a deal worth around US$22.4 million.

Mubadala will pay Dominion US$20 million upfront and it will also carry the cost of the remaining seismic work planned for the rest of this year – capped at US$2.4 million.  According to Dominion the new partners may seek to bring in another party next year, as they approach the drilling phase of exploration.

"We are very pleased to have Mubadala as a partner in Tanzania and look forward to building a strategic relationship with them throughout the region,” said chief executive Andrew Cochran.

“This agreement demonstrates the value of Dominion's offshore portfolio, which will benefit significantly from Mubadala's technical expertise, financial resources and gas marketing experience. 

“The planned partnership may seek to bring in another party as we approach Block 7's drilling phase next year, while Dominion accelerates work on the new acreage in Kenya."

Investors found further impetus from the farm-out news this afternoon,  after Dominion shares began the day strongly - buoyed by the latest drill success from Cove Energy (LON:COV) and Anadarko (NYSE:APC) in nearby Mozambique.

On AIM, Dominion was one of the market’s top risers this afternoon gaining 0.6 pence, around 20 per cent, to trade at 3.65 pence a share.

With a long awaited farm-out deal now complete investors will now turn their attentions to the exploration agenda. Alongside its new partner Dominion will assess potential targets, both within the already identified Alpha prospect and on other mapped prospects. 

Additionally today’s statement suggests future collaborations with the Abu Dhabi oil firm.

"This opportunity represents an important step in the continued growth of Mubadala's international oil and gas portfolio and our entry into an important, new high-impact exploration province,” said Maurizio La Noce, chief executive of Mubadala Oil & Gas.  

We look forward to working with Dominion, with its knowledge and experience of the region, on this exciting new venture and, potentially, others in the future."

Importantly today’s farm deal also gives Dominion much needed cash to advance its preliminary exploration work on its newly acquired assets in Kenya, the production sharing contracts for Block 9 and Block L15. Dominion separately confirmed that the Block L15 PSC was signed in Nairobi today.

Dominion explained that it will spend at least US$2.85 million on the initial exploration of Block L15. 

It plans to reprocess existing 2D seismic data, as well as carry out block wide geochemical and geophysical studies. It will also acquire at least 250 square kilometres of 3D seismic data during the first two years. 

Dominion said that Block L15, which like Block L9 is on the Davy-Walu structural trend, lies immediately to the north of Block L8 - owned by Pancontinental Oil & Gas - where a well is likely to be drilled in mid-2012 to test the Mbawa prospect.

“Planned drilling by other operators along the Davy-Walu trend over the next 12 months may serve to de-risk the prospectivity in both L9 and L15 before firm drilling commitments are made in either PSC,” Dominion added.

Additionally the company also announced that the Tanzanian authorities have formally accepted Dominion's request to relinquish the PSC covering the Selous Contract Area, onshore Tanzania.  Notably the Ministry of Energy and Minerals has also allowed US$500,000 of fees, already paid by Dominion, to be used as credit for the group’s commitments for Block 7.