ExxonMobil Enters Colombia Unconventional Play

ExxonMobil will farm into an interest in Colombia's Middle Magdalena Basin through an agreement with Sintana Energy's subsidiary Patriot Energy Oil & Gas.

The U.S. oil major will acquire an undivided 70 percent participation interest and operatorship in the unconventional formations in the 43,000-acre VMM-37 Block by completing a work program, Sintana said in a statement Monday.

In this program, ExxonMobil will pay all of the Phase 1 exploration costs for three wells. Drilling of the first exploration well is expected to begin in third quarter 2013. A consideration will also be paid to compensate Sintana for its past expenses connected with the block.

ExxonMobil will also have the option to proceed to the next phase, the development phase, of the program, in which it would pay all additional costs to a maximum of $45 million, with $10 million recouped by ExxonMobil from 50 percent of Patriot's production proceeds.

Additionally, ExxonMobil would have the right to withdraw from the project, relinquish operatorship and reassign to Patriot the right to the 70 percent participation interest it would have retained had it met all investments and activities requirements of the agreement.

Costs incurred if exploration and development exceed the planned activities and costs would be shared based on the parties participating interests, Sintana reported.

The agreement is subject to approval by the Agencia Nacional de Hidrocarburos of Colombia (ANH).

Sintana CEO Doug Manner said Sintana was fortunate to have ExxonMobil as it partner on the project.

"Both the conventional and unconventional formations on VMM-37 offer tremendous potential for large discoveries with compelling economics," said Manner in a statement. "ExxonMobil owns interests in, and is the operator of, a number of very large, highly complex unconventional projects in multiple countries. It is on the leading edge of developing and applying highly technical methods and complex processes to discover, develop and produce unconventional reserves."

In April, ExxonMobil subsidiary ExxonMobil Exploration Colombia Limited announced it had entered a $50 million farm-out agreement with Canacol Energy on Block VMM-2, adjacent to Sintana's VMM-4 block. VMM-4 and VMM-37 expose Sintana to a potentially large, unconventional shale oil fairway in the thick Cretaceous La Luna and Rosabalanca formations which are analogous to the Eagle Ford play in South Texas, according to Sintana's website.

Preliminary resource estimates for the VM Basin are considerable, ranging from several billion to nearly 40 billion barrels of recoverable resource, according to ANH.

Bloomberg reported in March that ExxonMobil, Chevron and Shell had shown interest in Colombia's unconventional energy resources, with at least $500 million in investment anticipated.