Christian Wulff, the state's premier, announced the deal late on Thursday after a meeting with officials from the company in Houston.
Lower Saxony has nearly 90 percent of Germany's conventional natural gas deposits, but they are expected to be used up in the next 20 to 30 years.
The exploration will focus on gas trapped in nonporous stone, which is considerably more difficult to develop. ExxonMobil will spend at least €100 million to fund drilling through next summer to determine how feasible that would be.
If successful, officials in Lower Saxony hope to make the state's capital Hannover a leading European centre for developing such types of gas reserves.