The AIM quoted firm will pay Tullow US$2.5mln to secure its entry to the early stage exploration venture, Block C-3. The sum paid by Sterling includes a payment for a share of Tullow’s past costs for the asset.
Whilst not unheard of, such a deal is contrary to the usual order of farm-out transactions. Typically, one would expect to see the junior party as the partial-seller of early stage acreage.
Nevertheless, the deal spreads risk and reduces commitments, something that is no doubt welcome for Tullow given the current climate of lower crude prices, capital discipline and reduced appetite for exploration.
Tullow last month revealed more than US$2bn of write-offs to its exploration and appraisal portfolio. And it slashed the exploration budget for 2015 to US$200mln as it prioritised production and development activities.
Block C-3 was picked up by Tullow in 2013. For the first exploration period, which runs until June 2016, it was required to capture 2D seismic data and a 1,600km programme has since been completed.
Interpretation of the seismic is currently underway.
During the second three-year exploration phase Tullow and Sterling will be required to shoot some 700km of 3D seismic and drill one well. A subsequent exploration period would require the drilling of another well.
Tullow and Sterling are required to carry state entity SMH (Société Mauritanienne Des Hydrocarbures Et Du Patrimoine Minier) for 10% of the project.
Sterling says the deal gives it an entry to both a multi-play exploration setting and to an emerging shelf margin play. It highlights Cairn Energy’s SNE discovery (estimated at 330mln barrels) to the south in Senegal as a point of encouragement for the regional play.
Alastair Beardsall, Sterling’s chairman, in a statement said: “We are very pleased to be joining Tullow in Block C3 in Mauritania, which we consider to be highly prospective.
“Block C-3 has an active work programme and we look forward to working with Tullow in the exploration of this largely unexplored block."