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3D Oil Closes $27m Deal With Malaysia's Hibiscus Petroleum, Production Within 2 Years

Gippsland Basin focused 3D Oil (ASX: TDO) has reached a A$27 million farm in deal with Malaysian oil and gas explorerHibiscus Petroleum Berhad that will allow it to progress development of the West Seahorse oil field in VIC/P57.

3D Oil managing director Noel Newell told Proactive Investors that the transaction would allow 3D Oil to become an oil producer within two years.

"I am just happy that we have completed what I think is a very good transaction in a very poor market," he added.

Hibiscus Petroleum will take a 50.1% operating stake in VIC/P57 and will also subscribe for 30.96 million 3D Oil shares valued at about A$2 million, giving it a 13% interest in the company.

The Malaysian company will be preferentially entitled to receive 74.9% of petroleum produced from the permit until the sales revenue equals the amount it funded.

Hibiscus managing director Kenneth Pereira will also be appointed a director of 3D Oil.

"Since floating 3D Oil on the ASX in 2007, we have investigated numerous paths to develop West Seahorse. This transaction with Hibiscus Petroleum clearly highlights the value in VIC/P57 and will enable us to go forward on the development and ultimately an oil producer," 3D Oil managing director Noel Newell said.

Chairman Campbell Horsfall added the deal created a strong strategic alignment between 3D Oil and Hibiscus Petroleum by granting an interest in 3D Oil's key asset as well as a cornerstone shareholding in the company.

West Seahorse development

The funding from Hibiscus will be used to initiate the development of the West Seahorse field, which involves the drilling of up to two appraisal wells.

"I am hoping that we will be drilling next year at least. Now we have money, we can talk to rig contractors and other companies," Newell said.

He said that 3D Oil was planning to work together with Origin Energy (ASX: ORG), which is looking to drill wells in the area next year.

West Seahorse will be developed through a mobile offshore production unit and a floating storage and offloading vessel moored to a CALM buoy.

This will allow for quick development and lower upfront capital costs as the production unit is a converted jack up drilling rig that can be leased and installed within 12 months from contract award.

It can also be relocated, making it very suitable for development of the West Seahorse field which will have a short field life.

3D Oil believes the West Seahorse field, which was discovered in 1981, can be developed as a subsea project with initial production of over 7000 barrels per day (bpd) of oil even at its conservative 1C contingent resource estimate of 4.2 million barrels of oil.

Oil and any associated will be transported to shore by a 14 kilometre pipeline before travelling along an additional 19 kilometre onshore pipeline to a new oil processing plant.

Hibiscus will transfer A$13.5 million to a joint operating account on completion of the transaction.

Another A$6.75 million will be held in escrow and transferred into the joint account when required to fund cash calls issued under the Joint Operating Agreement while up to an additional A$6.75 million will be paid into the escrow account when the first tranche is transferred.

Further upside

The joint venture will also target the drilling of an exploration well in the Sea Lion prospect.

Sea Lion has prospective resources of 20.7 million barrels of oil in the same reservoir units as at West Seahorse and upside potential in excess of 32 million barrels.

Any oil discovery will be easily producible, either through an independent development or as a joint development with West Seahorse.

Newell said Sea Lion had the potential to double or triple the NPV of the West Seahorse project.

"Now that we have completed this, we can move forward and start reviewing other opportunities to add to our portfolio now."

Hibiscus Petroleum

Hibiscus was listed on the Kuala Lumpur stock exchange as a Special Purpose Acquisition Company in July 2011 before conversion into a normal operating company on 18 April this year.

It holds a 35% stake in Lime Petroleum, which holds four concessions in the Middle East, as well as agreements with North Energy to participate in 4 concessions located at the Norwegian Continental Shelf.

The company has a strong management team with managing director Kenneth Pereira having 22 years of experience in the oil and gas industry with stints as the managing director of Mumbai listed Interlink Petroleum and chief operating officer of SapuraCrest Petroleum Berhad.

Shares in Hibiscus have increased over the last year to Malaysian Ringgit 1.87 from about MYR0.50. The company held cash of MYR218.5 million (A$66.8 million) as of 31 March 2012.

Analysis

With a strong cash rich partner backing development of the West Seahorse oil field, 3D Oil is now a step closer towards becoming an oil producer.

Even at the conservative 1C contingent resource of 4.2 million barrels of oil, the project could generate overall revenue of more than A$200 million net to the company at current oil prices.

With these figures, it is clear that the company's shares (currently about A$0.077) are undervalued and should be priced considerably higher than they are.

This does not take into account any success from the Sea Lion prospect.

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