Diversified commodities giant BHP Billiton Ltd. (BHP) has taken up an option to control a prospective oil target off the Philippines island of Palawan, the owner of the block said Wednesday.

Perth-based Otto Energy Ltd. (OEL.AU) said BHP Billiton has exercised an option to take a stake of up to 60%in the block by reimbursing Otto's past costs and funding a deepwater well by 2012. BHP would become operator of the block and have an option to drill a second well by 2013, it said.

Otto currently owns slightly more than 93% of the block and said it would retain roughly a 33% stake. Trans-Asia Oil & Energy Development Corp. owns 6.8%.

"The past 16 months have been a very busy period for Otto as we have acquired, processed and interpreted a large volume of seismic data to identify a portfolio of significant oil and gas prospects," said Paul Moore, Otto's managing director.

The block runs parallel to the island of Palawan and Otto said the data indicate a portfolio of gas and condensate targets that aggregate into an emerging major regional offshore trend.

BHP Billiton has been actively working to expand its petroleum division, particularly in natural gas where international oil companies are betting big the fuel will play a critical role in meeting the world's future energy needs. BHP in February agreed to buy Chesapeake Energy Corp.'s (CHK) Fayetteville shale gas holdings in Arkansas and some pipeline assets in a $4.75 billion deal.

-By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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