UPDATE 1-Falcon Oil, Exxon in Hungarian development deal

(Adds deal terms)

NEW YORK, April 10 (Reuters) - Exxon Mobil Corp (XOM.N) has entered into an agreement with Falcon Oil & Gas (FO.V) to start development work in part of an area in the Mako Trough, Hungary, in which Falcon holds a long-term production licence, the companies said on Thursday.

The agreement, which is effective Thursday, is between Falcon's wholly owned subsidiary, TXM Exploration and Production LLC, and Exxon Mobil's affiliate, Esso Exploration International Ltd.

The area consists of about 184,300 acres, or 75 percent of Falcon's 246,000-acre production licence. The contract area will be owned jointly, with Falcon owning a 33 percent interest and Exxon Mobil a 67 percent interest, the companies said.

Under the agreement Exxon Mobile will pay Falcon $25 million and spend $50 million to test one or more of Falcon's existing wellbores or drill one or more new wells for such tests, Falcon said.

If Exxon Mobil decides to continue to the next phase, the appraisal work program, it will pay Falcon another $50 million and spend $100 million, said British Columbia, Canada-based Falcon. If Exxon Mobil decides not to proceed, it will relinquish all of its interest in the contract area to Falcon.

After the appraisal work program is completed, Exxon Mobil will pay Falcon $75 million to proceed to the next phase, the development program, or reassign its interest to Falcon, according to the terms of the deal.

Falcon said it would incur no development costs within the contract area for Exxon Mobil's commitments during the initial work program or the appraisal work program.

Beginning with the development program, Falcon and Exxon Mobil would each receive revenues and be responsible for its proportionate share of expenses, under a joint operating agreement.

The agreement allows Exxon Mobil to assign half its interest to MOL, a publicly traded Hungarian oil and gas company, Falcon said.

Falcon is to remain sole owner and operator of 391,445 acres outside the contract area boundaries, as well as certain shallow rights covering 184,336 acres within the contract area.

BMO Capital Markets has acted as exclusive financial adviser to Falcon. (Reporting by Ilaina Jonas)