April 2008


Hungary

-- ExxonMobil farmed into two acreage positions within Hungary’s Mako Trough area. The first deal gives XOM a 50% interest in MOL’s Blocks 106 and 107 (JV acreage of 387,000 acres). The JV will undertake a two to three year test of unconventional gas potential. Financial terms of the XOM/ MOL deal were not announced. The second farm in was announced two days later with Falcon Oil and Gas Limited, another major land holder in the Mako Trough. XOM will acquire a 67%interest in 184,000 acres with Falcon retaining 33%. XOM will pay FalconUS$25 million in cash and spend US$50million as part of an initial work program to test the acreage. If XOM chooses to move beyond this first phase program itwill pay Falcon an additional US$50million and spend US$100 million infurther work efforts. If the Falcon/XOM venture proceeds to development, XOM will pay Falcon another US$75 million. XOM appears to have assigned half of its interest in the Falcon acreage to MOL.

If development progresses, the partners in these two ventures propose to use the same multiple zone stimulation technology that XOM is applying in its Piceance Basin project in the US. In that project, XOM proposes to further develop its 29,000 acre position by drilling wells from up to 120 multiple well pads having up to 9 wells on each well pad. If the Mako Trough project proves to be feasible, the JV partners currently anticipate 80 to 120 acre well spacing with a total of as many as 2,000 wells to be drilled over the 30 year life of the project. Well depths are projected to range from 8,200 feet to 18,000 feet and costs are expected at this time to range between US$8 to US$12 million each. Average Expected Ultimate Recovery (EUR) per well could range from 5.3 to 7.9 Bcfe implying ultimate reserves from the Mako Trough before royalties of 10 to 16 tcf. Future production, if the project proceeds, is subject to a modest 12% royalty rate.

Like BP’s recent deal to evaluate the potential of developing tight gas fields in Oman, XOM’s move into Hungary is a significant illustration of the potential broader scope of unconventional gas technology outside North America. Key differences between the two deals are (1) BP will likely be selling gas into a discounted price environment while XOM Mako Trough gas is likely to capture relatively high prices and (2) the timing of Omani gas development is likely to be contingent on factors outside BP’s control.

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