US company EOG Resources is making its first entry into Australia with the acquisition of the Beehive oil prospect off Western Australia from Melbana Energy.

EOG is a Fortune 500 company with an enterprise value of US$32 billion and produced more than 275 million boe last year and it could now be looking to drill its first Australian exploration well as early as next year.

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Melbana confirmed Friday it had agreed to sell its 100% interest in the WA-488-P permit, which contains the giant Beehive prospect, to EOG for an upfront payment of US$7.5 million.

It added EOG could be liable for contingent payments of US$5 million, subject to the US company making certain future elections with regards to the permit following completion of an exploration well.

Should EOG make a commercial find that leads to a development, the deal also includes production linked payments of US$10 million for every 25 million barrels of oil equivalent produced.

Melbana confirmed EOG was targeting a well on the Beehive next year, a prospect Melbana has previously estimated to hold 400 million barrels of oil equivalent.

Upside potential

While Melbana will be giving up its interest in the WA-488-P permit, the company will hold on to its recently acquired adjacent acreage - permit areas WA-544-P and NT/P87 - which contain the undeveloped Turtle and Barnett oil discoveries.

“This transaction allows Melbana to retain significant exposure to the upside of a potential Beehive discovery without being exposed to the costs of offshore appraisal and development, which can be expensive and challenging for a junior oil and gas company,” Melbana chairman Andrew Purcell said on Friday.

“The testing of this new and exciting play type in Australia, responsible for some of the world’s largest hydrocarbon discoveries, is what all the years of effort have been for and we are heartened that such an experienced and well-resourced company as EOG, known for being ahead of the curve when it comes to identifying new areas, will be responsible for the final stage of this journey.”

Deal still conditional

The deal is still subject to certain conditions, including regulatory approvals as well as receiving approval to suspend and extend the remaining permit obligations.

The current permit obligations, which were already extended last year, would require an exploration well to be drilled before 21 December this year.

Melbana had initially been on the hunt for a partner to drill the Beehive prospect and claimed earlier this year several parties were “advanced in their assessment” of the potential farm-in opportunity.

The Australian junior had already seen two potential farm-out deals for the acreage collapse in recent years, with French supermajor Total dropping an option in 2019 to earn a 40% share in the permit after funding a 3D shoot with Australia’s Santos.

Santos then elected to walk away from an option to gain an 80% interest in the permit last year in a deal that was also subject to it being able to secure another partner to participate in the drilling of Beehive.