Tap Oil Ltd. (TAP.AU) said Thursday that BHP Billiton Ltd. (BHP.AU) will exercise its right to buy an extra 25% stake in a natural-gas block offshore Western Australia state, scotching an agreed deal with a Japanese rival.

The deal will lift BHP's interest in the WA-351-P permit area in the Carnarvon Basin to 80%, with Perth-based Tap retaining a non-operated 20% stake.

Tap agreed last month to sell the 25% stake to Japan Australia LNG Pty. Ltd., a joint venture between Mitsui & Co. (8031.TO) and Mitsubishi Corp. (8058.TO), for around US$30 million in cash. In addition, the Japanese venture, known as MIMI, agreed to fund Tap's expenditure on a new exploration well up to US$10 million.

"BHP Billiton pre-empting the MIMI transaction provides further evidence as to the value of this highly prospective permit," said Troy Hayden, Tap's managing director.

Tap estimates the block has reserves of 2 trillion to 3 trillion cubic feet of natural gas, and possibly more given the number of discoveries made in neighboring permit areas. In addition, several liquefied natural gas projects planned nearby are bolstering confidence that gas finds can be developed and brought to market.

In a statement, Tap added that BHP hopes to drill a well on the Tallaganda prospect in the first half of next year, targeting estimated reserves of up to 1.3 trillion cubic feet of natural gas.

-By David Winning, Dow Jones Newswires; +61-2-82724688; david.winning@dowjones.com

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