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China National Offshore Oil Corporation (CNOOC) – parent company of CNOOC Ltd. (CEO - Analyst Report) – is set to acquire an interest in Australia’s Exoma Energy for a cumulative amount of A$23.4 million (US$24.2 million). The deal will enable CNOOC to raise its stake in various permits in central Queensland.

Exoma stated that CNOOC is expected acquire a 13% interest with purchase of over 62.1 million shares at A$0.173 each, in which case the total consideration would add up to about A$10.7 million.

Subject to shareholder approval, CNOOC also holds an option to raise its holding in the company up to 19.9% by purchasing additional shares at the same purchase price. If CNOOC wishes to increase its stake, it will have to put forward its proposal stating the number of additional shares it wants to buy within five days from the conclusion of the initial placement. Subsequently, Exoma will issue these share on attaining shareholder’s approval.

CNOOC also intends to increase its stake in several coalbed methane and shale gas permits in Queensland’s Galilee and Eromanga basins.

CNOOC already holds an interest of 50% in ATP’s 991, 996, 999, 1005 and 1008 based on a farm-in agreement with Exoma signed back in 2010. Per the deal, CNOOC had agreed to finance exploration costs for about A$50 million in the licenses.

CNOOC also proposes to exercise its right to gain a 50% interest in ATPs 1127, 1130, 1137 and 1150 - awarded to Exoma in early 2012.

With a further payment of around A$12.7 million toward Exoma’s share of exploration and appraisal costs, CNOOC intends to boost its stake by 10% in these nine licenses.

Both the subscription agreement and supplemental farm-in agreement are subject to consent from the Chinese Government Authorities, Australia’s Foreign Investment Review Board and the Queensland government.

CNOOC Ltd., which recently inked a deal to purchase Canadian energy producer Nexen Inc. , holds a Zacks #5 Rank (Short term Strong Sell rating). Longer term, we maintain our Neutral recommendation.

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