Exxon Hits Oil in Middle Magdalena

U.S. energy major ExxonMobil Corporation ( XOM - Analyst Report ) has encountered oil in exploration well Mono Arana 1, in the Middle Magdalena Valley of Colombia on the VMM2 block.

The Mono Arana 1 well was drilled to evaluate the hydrocarbon potential of a shallow conventional Tertiary Lisama sandstone reservoir and deeper shale and carbonate reservoirs in La Luna and Tablazo oil source rocks. The well was spud on Sep 23, to a depth of 9,942 feet in the Cretaceous La Luna structure.

ExxonMobil owns a 70.1% stake in the VMM2 block, while partners Canacol Energy Ltd. And and Vetra Exploracion y Produccion Colombia hold a 20% and 9.9% interest, respectively.

The drilling of the La Luna section shows encouraging results as around 760 feet of the section witnessed superior hydrocarbon deposits throughout the entire interval. The associate partners plan to test results from the La Luna later this year, after ExxonMobil takes over the operatorship of the Mono Arana 1 well.

Penetrating at roughly 4800 feet deep in the Lisama formation, the results show that it holds around 85 feet of potential net oil pay with an average porosity of 21% in three main zones. The company stated that two intervals flowed at a combined average gross rate of 1,242 barrels of oil per day during a short-term test in the tertiary Lisama sandstone.

The associated partners in the venture expect to evaluate and bring into commercial production the Lisama oil discovery in 2014. Further appraisal of the La Luna structure is also designed for the second quarter as it encountered high pressure while drilling the operation.

Although we remain skeptical due to ExxonMobil’s continued disappointing production trend, we expect major capital projects and upstream ventures to drive 2013 production volume. Additionally, the start-ups of Kearl and Kashagan and the production ramp up from 2012 start-ups in Angola and Nigeria are also added incentives.

In the third quarter, ExxonMobil’s production level decreased 7.5% year over year. The company also reiterated that it expects its oil and gas production to decline 3% in 2012, after a modest rise of 1% in 2011. We see ExxonMobil struggling to consistently grow production over time.

ExxonMobil retains a Zacks Rank #3 (Hold), which is equivalent to a short-term Hold rating. Meanwhile, there are certain other companies in the oil and gas sector that are expected to perform well and are worth buying now. These include Total SA ( TOT - Analyst Report ) and Hornbeck Offshore Services Inc ( HOS - Snapshot Report ) – both with a Zacks Rank #2 (Buy), while Royal Dutch Shell Plc ( RDS.B - Snapshot Report ) retains a Zacks Rank #1 (Strong Buy).